Buying a property together: top tips
One of the most exciting decisions in a new relationship is when to pool resources and buy a home together.
Whatever your age, this is a huge decision and not only a mutual sign of commitment to the relationship but also the undertaking of a serious financial obligation, which should be given thought and planning.
This article sets out some of the practical considerations which you should bear in mind when buying a property with your new partner.
Are you both committed to the relationship and the responsibilities which come with home ownership?
Owning a property should not be undertaken lightly. At its most basic level, the ownership of a property provides accommodation but of course, it is much more than that. It will be a home where, hopefully, you will both feel happy and safe, somewhere you make your own
Are your feelings towards the responsibilities of home ownership compatible? Do you both feel comfortable with the financial obligations, the maintenance of the property, keeping up to date with the paperwork, and importantly, openly discussing your finances?
It is far better to discuss these issues in advance so that you have a mutual understanding and(hopefully) avoid problems at a later stage.
Who is to contribute and how much?
In most cases, the purchase of a property will involve paying a deposit towards the total price and the balance coming from a mortgage. It is a good idea to discuss and agree:
- How much is to be contributed by each party towards the deposit (and do not overlook the costs of the purchase - a solicitor will give you an estimate of the costs involved).
- How much you are able to borrow together for the mortgage.
- Who will pay the monthly mortgage repayments.
- Who will pay all the other regular outgoings e.g. council tax, electricity, insurance, maintenance etc.
- A detailed budget, and work out how much each of you is to contribute towards the expenses.
What shares will you have in the property?
For most people the starting point is equal shares. However, there are factors which might affect this. For example, if one of you has contributed much more towards the deposit (or even the whole of it) or, being a much higher earner than the other, will be paying more towards the expenses, some couples feel that it is fair that the higher contributor should own a larger share of the property.
This should be discussed and agreed before the purchase (especially so for couples who are not married). Once that decision has been made, you need to tell the conveyancer so that the deeds of the property can accurately reflect your decision.
How will ownership be recorded in the deeds?
By law, there are two methods by which property can be owned. This is rather technical but it is important that it is considered, discussed with your solicitor and properly recorded on the legal ownership documents.
Briefly, property can be owned by two owners either as ‘joint tenants’ or ‘tenants in common’ (NB in this context, the use of the word ‘tenants’ has nothing to do with leases, renting or tenancies). Joint tenants own their property in equal shares, tenants in common can have equal or unequal shares.
- When a property is owned by two (or more) as ‘joint tenants’, the effect is that on the death of the first owner, the share of that person automatically transfers to the surviving owner, whatever the Will of the deceased owner says. ‘Joint tenants’ is the ownership method used mostly by married couples.
- If two owners wish to retain the right to leave their share to someone else e.g to their parents, or child/ren of a previous relationship, then they will need to be ‘tenants in common’.
- If they wish to own the property in unequal shares (e.g. 60/40) because they have contributed different amounts to the deposit or outgoings, they will also be "tenants in common".
What happens if you split up?
If you are planning a future together then it seems very unromantic and even pessimistic to talk about this. However, the reality is that increasingly relationships do sadly fail. The fact that it is discussed in advance does not, of course, make it more likely to happen. In fact, it is a healthy and important part of a relationship to be able to discuss tricky issues like finances and legal matters.
Protecting unequal shares
There are two ways in which it can be shown that joint owners agree that their shares are to be unequal.
The first is that when the deeds are prepared showing the ownership, the owners can be shown as ‘tenants in common’ and their agreed shares can be stated in the deeds e.g. the 60/40 shown above.
The better way is for a ‘declaration of trust’ deed (a private document) to be prepared at the time of purchase. The deed will state specifically the share of the property that each owner has and how the proceeds should be split on sale. This method is often used by joint owners who are not married.
A cohabitation agreement can also be useful to ensure that the additional details surrounding your lives together are set out in writing, including what happens if the relationship breaks down – this can make it easier for you both to move on without protracted legal disputes if the relationship does sadly break down.
All the above sounds very legalistic and complicated. In one sense it is, but then the purchase of a property is the largest financial transaction that most couples undertake in their lives and so it is very important to get it right.
Also, it avoids problems and complications at a later stage if intentions are not clear. This can be a complex (and expensive!) area of law to navigate should the situation arise.
Increasingly, parents are helping younger couples to get on to the property ladder. In that situation, it is important that all parties (including the parents) get independent legal advice to ensure that their wishes are reflected).
For further information about making sure your intentions are properly reflected on purchase, or if you are separating and own property together, please do get in touch with Sarah Green for some bespoke advice.
This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.