When it comes to buying a property these days it’s not unusual to purchase in partnership with friends or family. On the face of it, joint property ownership does have its advantages, especially sharing the financial burden of getting onto the property ladder which is particularly challenging for first-time buyers. However, there are other things to consider in a joint purchase of a residential property. Take a look at our guide below to make sure you’ve considered what’s involved before making your decision.
Source(s) of deposit
Before going too far down the line in purchasing a property the first thing you need to agree on is, for example, if the bank of mum and dad are contributing monies towards your deposit, are they wishing to co-own the property?
Often, parents or other third party contributors are simply looking to offer their support in lending money towards the house buyers’ mortgage. If this is the case mortgage lenders will more than likely insist the money is ‘gifted’ rather than ‘loaned’. This is to ensure that the property on which the mortgage is to be secured is not encumbered in any way.
Agreeing roles within your partnership
If you’re purchasing with friends or family you’ll want to consider each other’s contributions towards the purchase price and then monthly ongoing costs towards the running of the property. This will then make it clear what share of the property you will be responsible for moving forward.
Will you have equal or unequal shares? Is the split 50/50 or 60/40? Once agreed your conveyancer can put together a formal document called a ‘Declaration of Trust’ which is a legally binding document to confirm the financial agreement between the joint property owners.
This deed of trust doesn’t just have to be the agreed financials behind the ownership of a property. It can also be, for example, if two friends buy a property together and somewhere down the road one of them wants their partner to move into the property, what happens then? Setting out boundaries when buying with one or more people is key to ensuring a more harmonious living arrangement.
It’s also worth thinking about what happens in the long-term. How long do you realistically think you’ll own the property before one of the individuals wants to sell?
Have you lived together before?
It may seem like an obvious question but when buying a house with someone/people that you’ve never lived with before it could be a risk. Knowing another person’s habits and how they pay their bills (on-time or leave it until the last minute) will give you the confidence that having joint ownership of a property will be an enjoyable experience. If you’ve not lived together before then it would be worth considering renting somewhere for a short period of time to establish the household dynamics before moving on to buying a property.
“Beneficial joint tenants” or “tenants in common”?
When buying with another person(s) you will need to decide which type of joint ownership you are. To help you decipher this see here for the differences.
Joint tenants
As joint tenants (sometimes called ‘beneficial joint tenants’):
- You have equal rights to the whole property
- The property automatically goes to the other owners if you die
- You cannot pass on your ownership of the property in your will
Tenants in common
As tenants in common:
- You can own different shares of the property
- The property does not automatically go to the other owners if you die
- You can pass on your share of the property in your will
Your conveyancer will need to know which type of ownership you want when registering the property with HM Land Registry. You can, if your circumstances change further down the line, change your type of ownership from one to the other. You can also change from being the sole owner of a property to tenants in common or joint tenants if, for example, you wanted to add a partner as a joint owner.
How many people can be involved in joint property ownership:
As we’ve established it’s not unusual for more than two people to enter into buying a property together, especially as you’re limited to how much you can borrow. Standard practice has seen mortgage lenders only allow for up to four people to apply for one mortgage. However, it was recently announced that a new lender, Generation Home, will allow up to six people to apply for the same mortgage.
When applying for a mortgage, lenders will limit how much you can borrow, typically up to 4.5 times the annual salaries of the persons looking to be on the mortgage application. Therefore it is clear that having multiple persons buying together can be beneficial in boosting the amount you can borrow.
There are pros and cons to joint property ownership and, especially for first-time buyers, it is a realistic way of getting onto the property ladder. As long as you are aware of what is involved, you can make an informed decision.
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