According to recent statistics, joint mortgage applications of cohabiting couples increased by a staggering 60% year-on-year in 2020. Applications submitted by those in civil partnerships rose by 15%, whilst for married couples, the volume increased by 11%.
The restrictions and financial stresses of Covid-19 have forced many couples to decide whether to stay apart for lengthy lockdowns or speed up their decision to live together.
How long should you wait before buying a house with a partner?
There is no hard and fast rule when it comes to the ideal time-frame, as every situation is entirely unique. Emotionally speaking, of course, you know best whether the time is right.
From a legal and financial standpoint, however, there are some important considerations to factor in, and covering all bases fully is the best way to ensure your readiness to stop renting or take the joint ownership plunge.
Full disclosure on buying a house with a partner
Before beginning your property search, it is vital that both parties fully disclose their financial circumstances to each other.
This may include any existing loans or previous payments, or if your name is attached to another property’s deeds.
You also need to discuss exactly how you are going to manage the mortgage repayments and bills, covering all eventualities as you go.
Related: Buying A House To Renovate: Pros, Cons And Considerations
What does joint tenancy mean?
The most common home ownership option for couples is a joint tenancy.
Under this structure, if someone who's name is attached to the property dies, the property is transferred to the other person. This means that no individual owner can opt to leave their share of the property to any other beneficiary in their will. Unless such co-owners are either married or in a civil partnership, inheritance tax may still apply.
Joint tenants must legally act as one entity, meaning that neither have the option of only mortgaging their portion of the property - both tenants must take out a mortgage jointly.
Differing incomes and deposit amounts
It is an uncommon situation whereby both partners are on the exact same income. It's more likely that one partner can afford a greater amount when it comes to mortgage repayments. One of you may also be in a better position to provide a larger deposit than the other.
As uncomfortable or unpleasant as it may be to discuss the possibilities of breaking up down the track, it can save you both a great deal of future pain if you do.
Depending on the extent of the contributing differences, it may be necessary to consider a declaration of Trust.
What is a Declaration of Trust?
A Declaration of Trust is used to clearly outline the financial arrangements between joint tenancy owners of a property.
These legally binding documents are commonly used by couples who are not married to clarify the percentage of deposit that each person will contribute. It also covers:
- The percentage of property ownership that each party will retain
- How much each owner will contribute towards the mortgage repayments
- What will happen in the event of a separation and/or sale of the property
A Declaration of Trust is useful in outlining financial agreements when it comes to joint tenancies and the potential for any contentious property division in the future. That being said, should you fall short on your mortgage payments, despite having a Declaration of Trust in place, both parties are considered equally liable for the repayments as joint owners.
If the contributing amounts that you and your partner pay are two ends of the scale, you may want to consider buying a property under a tenants-in-common arrangement rather than a joint tenancy ownership. This arrangement allows you to divide the percentage ownership of the property at your own discretion. However, it does also mean that, should one of you die, the property is not automatically transferred to the other.
How does being married affect property ownership?
Good question. Firstly, you do not need to be married in order to be classified as joint tenants for the purposes of property ownership. With or without marriage, under a joint tenancy agreement, in the event that one party dies, their property ownership will automatically transfer to the other.
When it comes to tenants-in-common, however, the only way that property ownership would immediately revert to one party in the event of the other’s death, is if the parties are married, or if a will clearly states the other as the beneficiary and it is not contested.
Which brings us on to the question of buying a property with an individual who is still married to someone else. Entering into a joint tenancy ownership with someone who is still married will still initially result in their share of the property being transferred to you in the event of their death.
However, their marital status does technically mean that their share of the property forms part of their marital asset pool, and the person they were still married to can contest the division of this property and/or their will.
It is highly advisable to ensure that all divorces and financial settlements with other parties are finalised before entering into property ownership with another. While the outcome either way is by no means cut-and-dried, the likelihood of a contentious property division lawsuit not ruling in your favour is significant, and best avoided with a little patience.
Related: Can I Move House And Keep The Same Mortgage?
Buying into your partner’s house
If one of you already owns a property and you then marry (or otherwise decide to live together or pool your assets), you can buy into your partner’s house by doing a Transfer of Ownership.
The simplest way to do a Transfer of Ownership is as a gift. This way, a spouse/civil partner can be added to the title deeds as a joint tenant, with no money exchanging hands and no liability for taxes.
Alternatively, if you wish for one party to buy a share of the property (typically a 50% share), you will need to do a Transfer of Equity. It must be noted here, that if the value of the acquired share (the equity amount plus the mortgage that is taken on) exceeds £125,000, the partner buying in may be required to pay stamp duty. You will also need to engage a solicitor to handle the transaction legalities.
Related: Ask The Experts: Property Legal Matters
Buying a property with your partner is a big step, and one that requires much consideration. That said, so long as you both fully disclose your financial circumstances and come to all necessary agreements with clarity and maturity, you are doing all you can to protect yourself and could have your dream of property ownership come true much quicker.
If you are thinking of purchasing a property with your partner and would like some advice from our Portico Finance mortgage experts, contact us today! We are currently offering free broker fees to all our first-time buyers or vendors. If you already own property, use our online property valuation tool to find out how much you could sell it for, or get in touch with us on 020 7099 4000 if you’d like an in-person home valuation.
View all our available London properties for sale and start your search today! You can also check out our top ten interesting properties on the market right now.