Essential Advice When Buying With A Partner Or Another Person

Affordability is a hot topic at the moment, as the rate at which house prices are rising has started to outpace inflation. It was a point confirmed by the Halifax in early September, with the mortgage lender reporting that house prices increased by 4.3% in August - the biggest annual gain since November 2022 and almost double the current rate of inflation.

Unsurprisingly, another new set of analytics showed that buyers are joining forces with a variety of people to increase their deposit size and boost their borrowing power, not just moving in with a life partner.

Research by the Mortgage Advice Bureau found 52% of prospective purchasers said their financial situation had changed and as a result, they had revised who they planned to buy with. Younger buyers were more likely to team up with someone who wasn’t their romantic partner, with 23% of 18-24 year olds looking at buying with a family member or friend.

Anyone thinking of doubling up to purchase a property should work through their options with the White & Brooks team and an independent financial adviser.

Areas that should be explored include:

Mortgage lending

Lenders will typically loan 4-4.5 times a salary, so borrowing capacity is increased exponentially when two salaries are added into the equation. Both borrowers will be subject to credit checks and any bad history may scupper the loan or reduce how much can be borrowed.

Additionally, a mortgage is considered a ‘joint and several’ debt, which means both people are equally responsible for the repayments. It’s worth exploring what would happen if one borrower couldn’t contribute their half of the mortgage repayment.

Type of ownership

While a joint tenancy is often chosen by married couples, who are seen as one entity when it comes to homeownership, a tenancy in common is a great option for friends, cohabitors and relatives buying together. A tenancy in common allows each person to own a different share of the property, which can reflect what they are putting in. For example, if friend A’s contribution is 30% of the deposit, mortgage repayment and bills, they can be legally assigned 30% of the property.

A tenancy in common also allows each owner to specify who should get the share of the property if they die, meaning it doesn’t automatically go to the other owner.

Deposit

It’s quite common for one house buying partner to provide a larger deposit amount than the other. If it’s not an equal split, it is wise for the person putting in the higher amount to protect their contribution.

This can be done via a Declaration (or Deed) of Trust. This protects a specific deposit sum, so they get back the same amount when a property is sold. A Declaration (or Deed) of Trust is particularly useful if one buyer had help from their parents when buying, or if the deposit they used was a gift or inheritance.

Declaration (or Deed) of Trust

A Declaration (or Deed) of Trust can protect much more than a deposit. It can be as detailed as setting out who pays for which expenses when living in the property, so any confusion is avoided.

A Declaration (or Deed) of Trust can also ensure that each party receives their fair share of any profit when the property is sold, based on the financial contributions they have made during the ownership. For example, it can reflect whether one person had paid all the utility bills, or if one person paid entirely for a loft conversion.

A Declaration (or Deed) of Trust can also specify that one partner has the right to buy the other’s share of the property, should one person want to exit the arrangement.

Bill payments

Mortgage repayments, utility bills, broadband, council tax, food, insurance – there will be a list of bills to pay once in a new home. Who pays and how much can prove a contentious point should a home buying partnership split (this could be acrimoniously, or just because either person wants to buy on their own or purchase with someone else).

Having evidence of household contributions is a vital factor when two homeowners go their separate ways, especially if there is any profit. It’s sensible to have one joint account that’s specifically where all house-related direct debits and bills are paid, with each person transferring their agreed amount of money in every month. This way, there is a clear track record of contributions versus the cost of running the home. It’s also wise to keep invoices of any work carried out that may have increased the home’s value, with details of how this was paid for.

If you are considering buying with a friend, a new partner or a relative – and you’d like advice as well as a list of properties for sale, perhaps with two bathrooms  - please contact White & Brooks.