Even before the pandemic there was an increasing number of people buying their first home with someone they aren’t married to. Cohabitees are the fastest rising household type according to the Office of National Statistics. There has also been a surge in friends and siblings clubbing together to get on the housing ladder as it becomes nigh-on impossible to afford to live alone in many British cities.
Lockdown has only deepened the trend. Relate, the counselling service, refers to new “turbo relationships”, where pandemic dating, escalating to the joint trip to Tesco far quicker than it probably should, has meant the acceleration of couple milestones like sharing your finances. Many people forced to WFH in a rental flatshare have been wondering if there’s a better option than throwing cash at a landlord.
But while different household types have become the norm for young people in particular, the law hasn’t caught up. You are more vulnerable to losing money if you buy with someone other than a spouse. You need to protect yourself, and those you love, in the process. Here’s what to consider.
How comfortable are you with discussing money?
You need to be up for revealing all: income, savings, debts and deep breath too. It is a rare situation where both people in a relationship or friendship bring identical sums to the table. It might be that one person can afford to put more towards a deposit, while the other has a higher salary so can afford to take on a higher proportion of the mortgage repayment. Or one person is getting a chunk of money from their parents, while the other has been saving for years.
There is unfortunately no universally agreed rule on how to decide what is fair, but it is essential to become comfortable with what fairness means to you, and being able to communicate this before you tie your finances up with someone else.
You should also understand your soon to be house-mate’s credit file. As soon as you take out a joint financial product together, be that a joint account or a mortgage, your credit rating is affected by theirs, too. And if the person you’re buying with has a less than ideal credit score, you may end up with a more expensive mortgage rate or not being able to take out a mortgage at all.
When you have a joint loan you are also jointly responsible for the debt. That means if your partner or friend can no longer meet their mortgage repayments, you will be held liable, even if you didn’t put as much money towards the deposit.
Discuss the future, from the outset
It might seem a bit odd to be talking about when you’re going to sell a property that you’ve not even bought yet, but if you’re buying with friends or siblings this purchase probably won’t be your forever set up. At some stage one of you may decide you want to move on, perhaps move in with a new partner.
Draw up an agreement at the outset, you could get the help of a solicitor to do this in the form of a legally-binding declaration of trust. You may decide to have a date by which you both agree one of you can force a sale, or one person will “buy out” the other. This means returning a proportion of any deposit your housemate paid, and splitting any equity, including any increase in the price of the house since you moved in. This can of course be very expensive.
Also consider, would you be comfortable with renting the property out, or remortgaging it, in future?
The declaration of trust should include details of how the proceeds of any agreed sale would be split. Would you both get back the same amount of deposit you put in? How are you going to divide any capital growth in the value of the home?
Beware if you are cohabiting there is no such thing as common law marriage
It is a myth that living together gives you automatic ownership of each other’s property, money or possessions. This is only true if you are married. If you are cohabiting, or living with someone you’re not romantically involved with, and you decide to go your separate ways, then there is no official dividing up of assets. If you move into your partner’s property, or you are not named as owner on the deeds, even if you informally pay them cash towards the mortgage, you may be left with nothing to show for it if your relationship breaks down.
Joint tenants vs. tenants in common
Once you’ve decided what is fair, you can choose to buy a property as either joint tenants, or tenants in common.
If you are joint tenants the ownership of the property is split evenly, whether or not you both commit equal sums of money. When you decide to sell the property the proceeds are divided 50:50 (and one of you cannot sell the property without the other’s permission). If the property has gone up in value, you will both profit by the same amount. This way of dividing up your home also means that if one of you were to die, the other person inherits the property in full.
Tenants in common allows you both to own a different proportion of the property. So, you may decide that the person with more cash for the deposit owns a larger chunk, say in a ratio of 70:30 or 60:40. When it is time to sell, you will realise the amount you put in based on that proportion. In this situation you can also decide to sell your share without permission.
Make a will
The downside of the tenants in common arrangement is that you do not automatically inherit your partner’s proportion if they die while you both own the home. This can create an unexpected financial jam for those whose partner has not stated their wishes in a will. Without a will their next of kin, that is their children, parents or siblings, will automatically inherit their share of the property, not you. You may be forced to sell your home in this scenario, you might also find inheritance tax is owed on your partner’s proportion.
Create a living together agreement
Consider putting together a living together agreement. This could be a document overseen by a solicitor, or you could create your own together on a scrap of paper, listing how you view ownership of the home as well as any possessions in it. If you were to part ways, who would get the sofa? You might not see this as the most romantic or loyal proposition, but having something in place can actually help you forget about it, avoid messy conversations, or any lingering resentment in the future. Hopefully you’ll never need to use it!
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