In most places, the property market appears buoyant with prices continuing to rise. Although good news for many, this could make it more difficult if you are looking to get onto the property ladder. If affordability is an issue, one possible solution is to pool resources and to buy with friends or a partner and research suggests this is a growing trend, especially with younger buyers.
Type of ownership
When two or more people are buying a property together it is very important that they understand the different types of joint ownership available.
The way in which joint property is owned may have implications for couples who separate, friends and family members who pool resources to buy property together, and even married couples wanting to minimise Inheritance Tax liability.
Although we would hope that relationships don’t break down, unfortunately this does sometimes happen and therefore it is important to understand how sale proceeds will be split in future as this differs depending on how you hold the property.
The two ways in which property can be owned by more than one person is “Joint Tenants” and “Tenants in Common”.
Joint ownership, the legal basis:
The Doctrine of Survivorship applies meaning that the share of any person who dies passes automatically to the other co-owner(s) regardless of any provisions made in the person’s Will to the contrary.
The property is owned jointly by all owners therefore there are no shares held. Ownership as Joint Tenants may not therefore fairly represent the contribution that each person had made to the purchase of the property.
Joint Tenancy may be inappropriate for some second marriages or relationships as the property will pass on death to the surviving co-owner(s) and not to those named in the person’s Will (e.g. children from a previous marriage).
An example of when Joint Tenancy may be appropriate is for a husband and wife involved in a first marriage making a broadly equal contribution towards the purchase of a property who do not require Inheritance Tax planning.
Tenants in Common
On this basis, co-owners can own the property in equal or unequal shares. The Doctrine of Survivorship does not apply.
A deceased co-owner can leave their share in the property to any beneficiaries named in their Will or it will pass by the rules of intestacy if a Will has not been made. This can be useful for friends buying a property together where a co-owner wants their share to pass to their family rather than the other co-owner(s).
It can fairly represent the contribution that each person makes towards the purchase of the property, as co-owners can hold unequal shares, for example where one party has put down a larger deposit for a property. The exact share each person owns can be specified in writing in a Declaration of Trust which can help reduce future conflict or uncertainty should one co-owner die. For example, unmarried couples with contributions from parents can specify each person’s exact share of ownership.
Similarly, friends or family members buying a property together can specify exactly what share of the property they own.
A possible disadvantage of owning property as Tenants in Common is that on the death of a co-owner, a sole surviving owner is unable to sell the property on his or her own and must appoint another trustee to act in the sale. A Grant of Probate may also be required (where it would otherwise not be required) in a deceased co-owner’s estate.
Consider the nature of your relationship
How you hold the property should reflect the relationship you have with the other owners. For example, if you are buying a home with your long-term partner then your requirements are likely to be quite different than if you are buying with a group of friends.
It is often easier for friends to discuss what should happen if they want to go their separate ways than it is for romantic partners. Talking through your plans with your solicitor can help as she is well placed to give objective, independent, advice.
Weighing up the pros and cons
Buying a home is a major step, financially and emotionally. It is also usually a long-term commitment, and you will want to make sure the arrangement is right for you. You should consider carefully the advantages and disadvantages of buying a home with others. These will be personal to you, but could include:
• You will be able to share the purchase costs and running costs of your new home.
• You may be able to afford to get on the property ladder, or to buy a more expensive home than you could otherwise afford.
• Personal reasons, for example, because you want to live with someone or pool your resources with friends.
• Different attitudes or lifestyles can cause friction.
• Difficulties may arise if you do not agree over what should happen in the future, for example if one of you wants to sell, but the others do not.
• There may be fewer suitable mortgage products available and lenders may impose additional conditions.
• If you do have a mortgage then you will usually all be liable for repayments, so if one of you defaults you may have to make up the shortfall.
Some of these are easy to resolve if addressed in advance. For example, by agreeing a list of house rules and being open about your intentions. You should always clarify your respective rights and duties at the outset. Your solicitor can help with this and ensure the right documentation is in place, which will reduce the risk of any disputes arising in the future.
In particular, you should decide what will happen if you want to sell up or end the arrangement. Your solicitor can then prepare a Declaration of Trust which can include how you would share any profit.
For further information about buying a property jointly, or about buying or selling your home in general, please, contact us on 01392 209209 or email firstname.lastname@example.org
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.