Purchasing a home together is a thrilling milestone, but if you’re not married, it’s essential to plan ahead and safeguard your investment in case things don’t work out. Proper planning can help define ownership and outline what happens if you part ways and decide to sell the property.
Choosing the Right Type of Home Ownership
When purchasing a home together, selecting the appropriate ownership structure is just as important as finding your dream property. Different types of ownership have specific legal and financial implications. Here’s an overview of the most common options in the UK:
Joint Tenancy
With Joint Tenancy, both partners own the property equally, regardless of their individual financial contributions. A key feature is the “right of survivorship,” meaning that if one partner passes away, their share automatically transfers to the surviving partner.
- Best for: Couples seeking simplicity and ensuring a smooth transfer of ownership in the event of one partner’s death.
Tenants in Common
Tenants in Common allows each partner to own a distinct share of the property, such as 70% and 30%. If one partner passes away, their share is distributed according to their will rather than automatically transferring to the other partner.
- Best for: Couples who want their ownership to reflect individual financial contributions.
Sole Ownership
With Sole Ownership, one person holds the property title entirely. Ownership transfers according to the sole owner’s will upon their death.
- Best for: Individuals who prefer to maintain complete control over the property.
Mortgage Considerations for Unmarried Couples
The type of ownership you choose can impact your borrowing potential. Here are the main options to consider:
Joint Mortgages
Applying for a joint mortgage means both partners’ incomes and credit histories are assessed, often increasing borrowing potential. However, both partners share responsibility for the repayments, regardless of their financial contributions.
Individual Mortgages
In some cases, one partner may take out a mortgage in their name while both are co-owners. Known as Joint Borrower Sole Proprietor (JBSP) arrangements, this approach can benefit couples where one partner has stronger finances but requires careful planning around contributions and ownership rights.
Protecting Your Debt
Consider insurance policies that cover mortgage payments if one partner is unable to work due to illness or an accident. This provides financial security and peace of mind for both parties.
Consult a Mortgage Advisor
Navigating mortgage options can be complex. Experts can help you find the right solution based on your financial situation. They offer tailored advice at no cost to you, as lenders pay them once your mortgage is finalised.
Legal Agreements for Unmarried Homebuyers
To protect both partners’ financial interests, unmarried couples can use legal documents to clarify ownership and responsibilities:
Declaration of Trust
A Declaration of Trust outlines each partner’s financial contribution and how profits from a sale will be divided. It’s particularly helpful when one partner contributes more upfront, such as providing a larger deposit.
- Best for: Couples with unequal financial contributions looking to protect their investments.
Cohabitation Agreement
A Cohabitation Agreement sets out who owns what, how finances are managed, and what happens to shared assets if the relationship ends. This document should be updated to reflect significant life changes, such as having a child.
- Best for: Couples seeking clarity around their rights and responsibilities in the event of a breakup.
While a Declaration of Trust is legally binding, Cohabitation Agreements are increasingly recognised by courts if properly prepared, making them a valuable tool for financial clarity.
Which Legal Option Is Right for You?
The right choice depends on your relationship, financial contributions, and future goals. Discuss your options with your partner and consult a legal expert to ensure your arrangements align with your circumstances and long-term plans.
Tips for Talking About Home-Buying Options with Your Partner
- Be Honest and Transparent
Approach the conversation with openness. Emphasise that discussing these options is about protecting both of you, not just one person. - Focus on the Positives
Highlight the benefits, such as the financial security and peace of mind these arrangements provide for both partners. - Learn Together
Take the time to explore and understand your options as a team. This ensures both of you are informed and feel confident about your decisions. - Consult an Expert
Seeking professional advice can help address any questions and ensure you choose the best solution for your unique situation.