Here are the six key questions to ask your partner first
- 2020 saw 60% year-on-year rise in mortgage applications by cohabiting couples
- Cohabiters are fastest-growing family type according to the ONS
- Couples need to consider the financial and legal implications of buying together
- What is the difference between joint tenants and tenants in common, and is it worth creating a Declaration of Trust?
The number of cohabiting couples submitting joint mortgage applications in 2020 rose by 60% year-on-year, according to Mortgage Advice Bureau. In comparison, the number of joint mortgage applications submitted by those in civil partnerships rose by 15% in the same period, whilst for married couples it was 11%.
Cohabiting families are the fastest-growing family structure according to ONS data, having increased by more than 25% between 2008 and 2018.
‘In 2020, the restrictions put in place by the pandemic meant that many couples had to decide between living together or staying apart for long periods of time,’ says Brian Murphy, head of lending at Mortgage Advice Bureau. ‘This may have contributed to the 60% increase we saw in two-person cohabiting mortgages last year, with lockdown possibly speeding up the moving-in process for many couples.
‘It’s becoming more and more common for partners to buy a property together before marriage. ‘Whilst it might not be the most romantic dinner chat, it’s important to discuss financials and the possible challenges you might encounter.’
This is Money spoke to property and mortgage experts about the six key questions couples need to ask each other before buying a home together.
1) Have we been completely honest with one another?
Before beginning a property search or seeking advice from either a mortgage advisor or a solicitor, it is vital that both parties are honest about their own finances. This might include disclosing personal loans, hire purchase agreements, payday loans, missed payments on your credit file or even the possibility that someone’s name might already be on the deeds of another property.
You also need to know how you’re going to share the mortgage payments, the bills and maintenance costs. For example, one person might be providing more of the deposit whilst the other might be on a higher income and can therefore compensate by paying more towards the mortgage.
As awkward as it might be having a discussion about what will happen were you to fall out or break up, this may save you a lot of pain in the future.
‘If you want to sell the property in the future, both parties will need to sign the transfer – but if you split up and it isn’t amicable and you have different opinions on selling the house, a court order might be needed,’ warns Dev Malle, chief business development officer at My Home Move Conveyancing.
2) Are we both on the same page?
This might seem basic, but you need to ensure both parties are happy with the location and type of property you end up with. You need to discuss your priorities – from choosing between a Victorian terrace and a new build, to whether you value a garden over a bigger living room.
‘You can have some fun at this stage and think about the features you each like in a property, maybe compromising on features or location so that you are both happy,’ says Malle. ‘You’ll need to make sure the property ticks a lot of boxes for both of you so that you can both be happy there – potentially for many years to come.’
3) What are the mortgage implications?
Mortgage lenders will assess a joint application in the same way, regardless of whether it is for a married couple, a civil partnership, an unmarried couple or friends. The advantage of borrowing as a couple is that, if you both have a regular income, then this can boost the amount you are able to borrow. But each borrower’s credit history will also be taken into account when the lender is deciding on the appropriate borrowing level.
‘If either party already has a poor credit record, their potential co-purchaser should consider carefully whether it is wise to take on a joint financial commitment with their friend or partner, even if they were able to obtain a joint mortgage,’ says Raymond Boulger, senior mortgage technical manager at John Charcol. ‘In this situation, even if a mortgage could be arranged, it is likely to be more expensive for both purchasers.’
It is also important to know that both borrowers will be jointly and severally liable for the mortgage payments. ‘This means that the lender will be able to chase either or both of the borrowers for full payment if they don’t meet the monthly payments,’ says David Hollingworth of L&C mortgages. ‘The mortgage will be in both borrowers’ names, so if payments are missed, even if one isn’t living in the property, it will directly impact both credit ratings and any arrears will be under both names.’
4) What form of ownership should we choose?
When buying a property together, unmarried couples have a choice over whether to register with the Land Registry as joint tenants or as tenants in common.
As joint tenants, you will both own the property equally – there are no separate, identifiable shares. If one person were to die, the surviving owner would automatically receive the other’s ownership in the property.
As tenants in common, you each own separate identifiable shares in the property. These may be equal or unequal shares depending on what you decide. Under this form of ownership, if one person were to die, their share in the property would pass to whoever they have chosen to inherit it in their will.
‘If you are contributing different amounts, you should consider whether you wish to protect your respective shares in the property,’ says Rob McKellar, head of residential conveyancing at Slater and Gordon. ‘You should also consider what should happen to the property if one of you was to die – do you wish for the other to automatically receive your share, or do you have a will that you would like the property to pass under instead?’
Often, the choice comes down to whether or not you will be contributing equally to the deposit and mortgage.
‘Joint tenancy is a popular choice for couples, and can mean a little less complexity and fewer legal documents as there isn’t any special paperwork required,’ says Malle. ‘But if your financial contributions to the property are unequal, it’s worth considering whether you’re both happy with this arrangement, as neither of you will hold a higher share than the other.’
Couples might prefer to opt to be tenants in common if contributing different amounts for the deposit or mortgage repayments. This is also a popular option for friends buying together, who want to keep their finances separate.
‘You can choose to divide your shares by what seems sensible to your situation, but note that a reduced percentage share still means you have the right to access all of the property,’ says Malle. ‘It’s also worth noting that, in the unfortunate event of one you passing away, the remaining share doesn’t automatically pass to the survivor. ‘This could be important if you would prefer your share to pass to another family member or, if you should have children from a previous relationship, you want it to pass straight to them.’
5) Should we create a Declaration of Trust?
A Declaration of Trust is a legally binding document which will show the financial arrangements and intentions agreed between joint property owners at the time of purchase.
‘Although not required by law, any tenants in common should draw up a Declaration of Trust because it makes the ownership shares much more transparent and easier to prove in years to come,’ says Malle. ‘It can include how much money has been invested by both parties and the percentage of the property each person will own.
‘It’s an important document as, in the event of a split, it explains how the sale proceeds of the property should be divided between the parties after the mortgage and legal fees are paid off.’
6) What happens if you break up, but one person refuses to sell?
Both parties will need to agree to sell, whether they own the property as tenants in common or as joint tenants. If you can’t come to an agreement on what to do with the property, you can try to force a sale – but the process may be stressful, time-consuming and expensive.
However, if you are tenants in common, writing an exit clause into the Declaration of Trust can make things easier if a sale needs to be forced. ‘You can either try to come to an agreement to buy them out, or come to an agreement about splitting the proceeds after the sale – possibly by offering your ex-partner a bigger share to help convince them,’ says Malle.
‘Forcing a sale, if it comes to it, will mean getting a court order. Going to court can be long, drawn-out, stressful and difficult, and will require a solicitor to be involved. ‘It may be best to consider a Declaration of Trust, which sets out what each party can do if the other wishes to sell, when you initially purchase.’
[Source: dailymail.co.uk/money, 22 February 2021]
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