The property market in our part of the world appears to be rebounding after a lull in activity resulting from the disastrous Mini Budget of September 2022 which sent interest rates soaring.
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 buy with friends or a partner, and research suggests this is a growing trend, especially with younger buyers.
If you are thinking about buying a home with others, there are things you should consider first. Here, Eve Wilson, KWW’s Head of Residential Conveyancing, looks at the issues involved and offers some advice.
Joint ownership, the legal basis
Joint ownership is a little more complicated than owning a property outright, as the legal structure must take account of the relationship between you and the other owners.
There are two ways of owning a property jointly, as joint tenants or as tenants in common. If you are a joint tenant, the law treats you and the other owners as owning the whole of the property together, with no predetermined shares. In contrast, if you are a tenant in common you will own a share in the property. Shares do not need to be equal.
You will need to decide which basis is right for you, as this determines how you will split any profit on sale and what happens to your interest should you die.
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.
In the former case, a joint tenancy may better suit your aims. You own the property jointly; it is not divided into notional shares. On any future sale, you will share any profits jointly and equally. Should one of you die, then the surviving partner will automatically own the property. This can give you and your partner peace of mind that you will be able to stay in your home.
In contrast, being tenants in common generally allows more flexibility to specify the terms on which you own the property. You can set out your respective shares, for example, to reflect different financial contributions, and you can choose who will benefit from your share in your will. The flip side is that if the other owners die or sell up, you may not be able to stay in your home unless you can buy their share.
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 you will benefit from receiving 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, 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 or cohabitation agreement, which can include how you would share any profit.
A declaration of trust with floating shares can take account of your original contributions and matters which you may not be able to quantify when you first buy your home. For example, if one of you contributes more to the mortgage or the cost of an extension during the course of your ownership.
You may also want to consider whether the person wanting to sell must first give the others the option to buy him out, and on what basis. This may mean it takes longer to exit the arrangement but could give you greater peace of mind if you want to stay in your home.
Beware of unintended consequences
It can be difficult to anticipate all of the implications of owning a property jointly, which is why you should always talk over your plans with your advisors. For example, whether you are joint tenants or tenants in common could affect the amount of tax you will pay in the future. Similarly, if you decide to move out but want to keep your share of the property, you could end up paying more stamp duty on your next home.
Be flexible and keep things under review
Remember priorities change, and what suits you now may not be such a good fit in the future. Having a solicitor who fully understands your situation will help to future-proof your arrangements.
Sometimes, your personal circumstances may change. For example, if you get married or start a family, you may want to alter or add to your original arrangements.
Talk to your solicitor to get advice on the best way forward, whether that is changing the legal basis of your property ownership or rewriting your will.
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.