Updated 03 September 2020
When you’re looking for the chance to buy your first home, you may face an obstacle that’s even more daunting than raising a deposit or securing a mortgage deal. Although some people can afford a property on their own, it’s much easier to buy as a couple – but what if you’re not in a couple, or not yet ready to commit to owning a home together?
Fortunately, you can still buy a home with one or more other people, even if you’re still free and single, or in the early stages of a relationship. Here you can find out more about how to do this.
People who can’t yet afford to buy a home often live in rented accommodation, usually with a number of housemates or flatmates. It’s convenient as it spreads the cost of the rent, but it has several disadvantages. Renting can be as expensive as repaying a mortgage, or even more so. Furthermore, money paid in rent is gone forever – whereas money paid on a mortgage goes largely into the long-term investment of your home.
Therefore, if you currently share rented accommodation, the prospect of being able to buy a home together may be very appealing. Fortunately, there are two kinds of home ownership: joint tenancy, and tenants in common. Joint tenancy is the usual way for a couple to own a home together, while a home-share arrangement may be more suited to tenants in common.
Joint tenancy is the most common form of home ownership. Under joint tenancy, you both own the whole property together – not half each. This means that if two people are both named as joint tenants on the Land Registry, both have an equal claim on the property even if one of them has never paid a penny towards it.
If one joint tenant dies, the whole property passes to the surviving tenant (i.e. it cannot be bequeathed to anyone else in the deceased’s will). If the joint tenants are not married or in a civil partnership, this may result in an inheritance tax bill.
One joint tenant can even sell the home without the other’s consent or knowledge. Joint tenants act as one in the eyes of the law, so it can be a costly legal process to sort out ‘who really owns what’.
All of this means that joint tenancy probably isn’t suitable unless you are in a stable, long-term relationship with the other buyer. If you want to get on the property ladder with one or more friends, then a practical alternative may be to buy a home as tenants in common.
Up to four people can buy a home together as tenants in common (couples can use this arrangement too if they wish). Each person’s share of the property is defined at the outset. For a couple this will often be 50:50, but in some cases the share may be divided to reflect each partner’s contribution (e.g. 60:40). With four people, ownership could be split into 25 per cent shares, so that each tenant need provide only a quarter of the deposit and a quarter of the mortgage repayments.
This can allow you to get onto the property ladder affordably, even if you haven’t yet settled down with a partner. If any tenant wants to move out, they can either sell their share to a replacement tenant, or the remaining joint owners can buy them out.
Tenants in common isn’t just a useful arrangement for home-sharing. If you want to buy a home with your partner, but aren’t yet fully confident about the relationship, this set-up makes it much easier to get your share of the property back if you were to split up in the future.
Tenants in common can also gift their share of the property in their will (in the case of joint tenancy, a tenant’s share passes to the other tenant in the event of their death). This can be an advantage for unmarried couples with children, as it can sometimes prevent an inheritance tax bill (your financial adviser can tell you more about this).
Tenants in common don’t have complete independence from one another. If one tenant can no longer meet his or her mortgage repayments, then the other tenants will have to pay these instead or risk losing their home.
It can also be tricky to sell a home owned by tenants in common, as all tenants must agree to the sale. If agreement can’t be reached, it may be necessary to take costly legal action to force a sale. Ask your solicitor about this.
If you want to sell just your share and move out, you’ll have to find a buyer whom the other tenants will accept, and this may not be straightforward.
In the tragic event of one of your fellow tenants dying, there is a risk that their share will be inherited by someone you don’t know, which might make life difficult for the remaining tenants.
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