When you buy a home, especially your first home in a joint tenancy, it is rather a big step and you may be worried about a mortgage.
As gloomy as it may sound, it’s vital to consider the “what ifs?” in case things don’t turn out as expected. Selling the home and splitting the proceeds is one possibility when a relationship ends. A different option is to put the residence in only one person’s name. What transpires, though, if you buy a property where one party puts down a larger deposit than the other? What would happen if one partner had previously bought a home, sold it, and used the money from the sale to put down a deposit on a new one? What if a family member gave money to one person to help with the deposit for them to buy the property together?
Starting with the name or names on the title, which is typically held in equal shares, equity is distributed. Arguments concerning whether or not equity in the property should be split equally by the separating couple can readily occur in situations when relationships fail, particularly if differing amounts have been donated for shared ownership.
Fortunately, there is a proactive approach to averting this kind of conflict. The answer entails a binding contract that was created by a lawyer. The agreement, which is typically written at the same time as the house purchase, specifies how much each party contributes to the deposit and what will happen to that money should the couple ever decide to divorce.
For instance, if partner A deposits £25,000 and partner B puts £5,000 toward the deposit. The mortgage and the home’s title are held in joint names.
The contract might stipulate that, in the event of a divorce and the sale of the home, after the mortgage has been paid off, A will receive the first £25,000 of the sale proceeds, B will receive the next £5,000, and the remaining free proceeds of the sale will be split equally between them.
When everything in the relationship is going well, such agreements give the couple a sense of security and certainty that enables them to take charge of a particular situation.
Tenants in common
You can choose how much of the property each individual will own if you opt to purchase it as tenants-in-common. In this case, if two persons acquire the property but one paid more for it, you can conclude that ownership should be divided 60:40.
Each person only has a right to their portion of the property, and if it is sold, they will only be entitled to that portion of the revenues.
When one of you passes away, his or her portion of the property becomes a part of the estate and does not automatically pass to the remaining owner (s).
Declaration of trust
If the property is held as tenants-in-common, a Declaration of Trust should be completed. The Declaration will list the financial contributions made by each party to enable the purchase of the property, but it can also include information about who is responsible for expenses related to the property, such as maintenance costs and mortgage payments, as well as what should happen in the event that one co-owner passes away or the property is sold.
The agreement tries to limit any potential sources of contention and would make any future divorce easier. Couples with children frequently find it very helpful to file a Declaration of Trust since it can be good for minimizing inheritance tax.
Even if you contributed to the purchase in unequal shares, if you choose to acquire the property as joint tenants, it is presumed that the co-owners will own the property in equal portions.
The interest in the property held by the deceased, in the event that one of you passes away, immediately belongs to the survivor(s) and is unaffected by any Will that may have been prepared.
However, if you have children from a previous relationship, you might want to think about owning the property as tenants-in-common so your share of the property will pass to your children. This option is popular among married couples.
Consult a solicitor before you buy your first home
If you are stuck in a mortgage and unsure of what to do next, contact our solicitor for first-time buyers. Before you buy a property together and take out a joint mortgage, make sure you consider all the factors.