What you need to know when buying a home with a partner or friend.
Buying a home with a friend or family member means making legally-binding choices. Making an uniformed decision at the start of the buying process could be a costly mistake. Here’s what you need to know when buying a home with a partner or friend.
What are my tenancy options?
When you buy a home with someone else you will need to decide how the property is legally owned.
There are two types of residential property ownership:
- Joint tenancy - in which buyers are viewed as one, with equal shares and rights.
- Tenancy in common - in which buyers can own individual shares in the property of differing values.
Buying with a partner or spouse
Most people buying a home with their partner or spouse would do so under a joint tenancy.
Under a joint tenancy, both partners will own the property together, each holding an equal share.
A joint tenant cannot re-mortgage or sell their share in the property without the agreement of the other.
If a relationship breaks down, you will still both legally own your home together.
If one partner moves out, both partners will still own the property together, unless you choose to legally sever the joint tenancy. Severing the tenancy should be a priority if you no longer plan a future together.
If at any stage, you both want to change the type of tenancy you hold (i.e. your joint tenancy to a tenancy in common), you can do so at any time, free of charge.
Right of survivorship
Joint tenancy includes a ‘right of survivorship'. If one partner dies, the right of survivorship means that full ownership of the property would be passed to the surviving partner.
One partner can’t leave their share of the house in their will to anyone else other than their partner, the joint tenant.
Will I need a cohabitation agreement?
If you’re married or in a civil partnership, the law offers you greater financial protection when you live together.
If your relationship breaks down, and you are not married or in a civil partnership, there is greater potential for confusion over the assets you share. If your mortgage is held in only one of your names, this can further complicate matters.
A 'cohabitation agreement' is a legal agreement that sets out each partner's rights in regard to property should your relationship break down. A cohabitation agreement sets out:
- what happens if you separate
- who is accountable for debts
- who owns what share of the property
- who is responsible for bills and the upkeep of the property
If you are not married or in a civil partnership, a cohabitation agreement is recommended. Your solicitor can draw up this agreement alongside the conveyancing process when you buy a property.
Buying with a friend or friends
If you’re buying with a friend or in a group, a tenancy in common could be your best option. A tenancy in common allows up to 4 people to co-own a property.
Under a tenancy in common, individuals can own unequal shares in a property. This can be especially useful if individuals contribute different amounts to the purchase. Each share is also independent of the other shares - meaning each buyer can sell their share, re-mortgage it or leave it to someone in their will.
A tenancy in common offers the flexibility you may be looking for if buying with a friend, you will all have 'joint and several liability' for any mortgage repayments. If one of you defaults on the mortgage repayments, leaving the remaining partner/s unable to cover your repayments, you could all end up with a black mark on your credit rating.
Will I need a Deed of Trust?
A Deed of Trust is a legally binding agreement that outlines the financial arrangements and ownership shares of a property between parties. It specifies each party's contributions towards the purchase price, mortgage repayments, bills, and maintenance costs, and it can also outline how the proceeds from the sale of the property will be divided.
A Deed is crucial for protecting individual investments and preventing disputes, especially when the property is owned by tenants in common, as it establishes the proportion of the property each person owns and is entitled to in the event of a sale. It can also be used for various other purposes, such as inheritance Tax (IHT) tax planning or setting up a trust for minors.
This agreement is usually entered into by friends and unmarried couple when buying a property together.
Read more:
What's the difference between a joint tenant and a tenant in common?
Be prepared
If you plan to buy a property with another person, have a discussion to make sure your expectations are the same as those of those with whom you intend to buy.
Being financially practical at the outset needn’t take the joy out of buying and owning a home together. Making sure you and your partner are on the same page and, if necessary, ensuring this is correctly reflected in the legal documentation makes good sense.
Your conveyancing solicitor will be familiar with all the options and will advise you accordingly.
