Hotproperty offers those looking to buy jointly some legal tips to ensure an easy ride. By Anna Bowden
Previously associated with married couples or partners setting up home together, joint ownership is now becoming popular with other segments of society who have been priced out of the market and can no longer buy a property alone or who want to maximise the amount they can borrow.
The Council of Mortgage Lenders says as many as four friends can have a joint mortgage, but there aren’t that many lenders who will actually give a mortgage based on multiples of three or four individual incomes — most will only offer up to three times the highest income plus the sum of all the others. There are two legal forms of joint purchase – joint tenancy and tenancy in common. These are explained below.
Joint tenants
This applies to two people only with each paying 50 per cent of mortgage and household costs. Neither party can sell his/her share without the consent of the other person, and when the property is sold 50 per cent of the profit (or loss) is taken by each partner. Should one die, his/her share passes to the survivor. This type of agreement is usually undertaken by couples when they buy together.
Tenants in common
This is the most usual type of contract for friends or family buying together and is usually defined by the different proportions paid by each partner. For example, 60 per cent of the deposit and mortgage payments might be made by one person and 40 per cent by the other. If the property is resold, the profit or loss is distributed according to the established proportions, and if one person dies his/her share goes to the next of kin rather than the surviving tenant(s).
This type of contract is a great idea for those struggling to get onto the property ladder, but can be more problematic in the event of a death as the deceased’s next of kin may want to realise their inheritance in the form of a cash sum instead of a share in a property. A clear will or formal contract setting out what will happen in the event of a death will help to resolve the situation should it ever occur.
For both types of contract it is worth remembering that if one mortgage borrower disappears or defaults, the lender is entitled to and will pursue the other(s) for the full amount, so make sure you are protected with the right insurance.