Joint property ownership: what you need to know about mortgages and legalities before buying a house with friends and family
More and more young people are venturing into the world of joint ownership of property, whether it be with their partners, friends, siblings or parents.
Sharing the financial burden with another person is often the only way London first-time buyers can afford to move into a home of their own and free themselves from the rental roundabout.
On the face of it, it’s a great idea. However, people are all different, as are their goals, aims, beliefs, views and perceptions. This can lead to problems.
To minimise the risk, any joint purchase of a residential property should be planned and structured carefully.
What is a declaration of trust?
Parents helping their children by contributing to the purchase price may not wish to co-own the property with them. In this case, they should consider if they are gifting the funds or lending them.
If their children are planning on applying for a mortgage, the lender is likely to insist that any of the purchase price provided by parents or another third party is gifted, not loaned. This would ensure that the property on which the mortgage is to be secured is not encumbered in any way.
If friends, siblings or partners are buying together, the contributions of each party to the purchase price and to the future running costs of the property may be taken into account when calculating ownership shares.
The property could be owned in unequal or equal shares. For example, two purchasers could each own 50 per cent if they contribute the same amount; or 70/30 per cent if one contributes 70 per cent and the other 30 per cent.
Whatever the ownership split, it should be recorded in writing in a trust deed, also known as a “declaration of trust”.
Such a document can be used to record the responsibilities of each party for usual outgoings such as utility bills, what should happen if one party wishes to sell their share in the property, how the property would be valued on sale, what is to happen if one party wants to move out but let their room, and so on.
This may seem over the top and unnecessary, but it really is worthwhile. Just imagine the situation: two friends have bought a house together and one of them wants their partner to move in but the other doesn’t want that to happen, as the whole social balance of the household could be affected.
A trust deed can cover what should happen in such a situation and provide clarity for all concerned.
Joint owners can own their property as “beneficial joint tenants” or as “tenants in common”. In the former case, on the death of one joint owner the property automatically passes to the survivor.
In the latter case, on the death of a tenant in common the share of the deceased will pass under the terms of their will, if they have one, or under the intestacy rules if they don’t.
Decide what you want and, if you choose to be tenants in common, make sure your solicitor registers a restriction on your title to the property at HM Land Registry.
Remember that the parties to a joint mortgage are also jointly liable for the debt. This means that if your co-owner runs off and stops contributing to the mortgage, your lender could choose to pursue you alone for the mortgage debt.
It would then be up to you to claim reimbursement from your co-owner — which could mean that you end up having to take costly legal action against them. Furthermore, you would be unable to sell the property without your co-owner’s consent unless you took court action.
It is a question of trust — and of having a trial run
Buying a home with someone else is one way of getting on to the property ladder but do make sure you buy with someone you know and trust, that you plan carefully and seek good legal advice regarding a declaration of trust.
To prevent too many problems it might be a good idea to rent together first — then you are in a better position to know how you both organise your lives.
If one of you is a spender who is always late paying bills, while the other is a careful saver, you could irritate each other.
Prepare a spreadsheet and work out what it is going to cost annually to pay for the upkeep of your new home.
Open a joint account into which you both contribute for the essential outgoings such as utilities, maintenance costs and service charges, and set up standing orders or direct debits to cover these.
Try to agree at the outset a minimum period of time that you will share the property before one of you decides to sell. Perhaps even have a five-year plan.