Buying a property with a friend, partner, brother or sister is known as joint ownership. It's not new, but it is on the increase. Joint Owners have joint equity in a property and are co-buying a property together.
Joint ownership is a way of escaping the ‘rental trap' to buy own property. It can mean that you are able to buy a bigger or nicer property in a better area, perhaps even ‘leap-frogging' the bottom rung of the property ladder altogether. Assuming property prices rise, then over time, equity can be amassed and this can be used as a deposit for a next house.
When it comes to buying as part of a group, up to four or five people can take out a joint mortgage. This may mean that four incomes are taken into account by mortgage lenders. The lender may agree to lend two and a half times the first two incomes plus one times each of the other two incomes, or three times the highest income plus the other three, for example. Multiples vary from lender to lender – your mortgage broker would have the facts at their finger-tips. Potential joint-owners are advised to shop around to find the most competitive and suitable mortgage provider.
It's important to remember that as individuals, each member of the group is responsible for 100% of the mortgage. For this reason all those involved should take out insurance to protect themselves in the event of one of the group, for whatever reason, being unable to make their contribution to the mortgage payment.
Legally there are two types of joint ownership.
The first, which is commonly used by married couples, is ‘joint tenancy'.
Under this agreement a couple are entitled to half a share of the property irrespective of any financial contribution. In the event of one partner dying, their share in the property will usually automatically pass to the other.
If you are buying a property as a group, ‘tenancy in common' is considered to be the most appropriate type of ownership, as each person can own a definite share in the property. Under this type of arrangement you are able to specify in a will to whom your share of the property should pass if you die. These arrangements should be laid out formally in a ‘declaration of trust' or ‘trust deed' drawn up with a solicitor at the outset. A record of each person's monthly contribution to the mortgage and other regular payments will need to be kept in order to decide the equity split upon sale of the property.
No matter how well you get on, when it comes to living under the same roof with friends, colleagues, or even members of your own family, conflict and tension may arise from time to time.
To help smooth the way joint owners are encouraged to draw up a co-habitation agreement which lays out some basic ‘rules for living'. This agreement can include anything from whether pets should be allowed to moving in a partner. Being aware of potential areas of friction at the outset and drawing up agreed solutions to them in a legal document with an experienced solicitor could save considerable heartache and thousands of pounds. It is important that you do not fall out with your co-owners as the last thing you want is for mortgage payment defaults or for litigation. This agreement is called a joint ownership or co-habitation agreement.
Parents can also jointly own a property with their children as a way of helping them onto the property ladder. Alternatively they can apply for a joint mortgage without the parent even being on the title deeds. There will be tax implications if a parent owns part of a second home.
Another trend is for first time buyers to find co-investors through on-line introduction agencies. This may suit some people and extra precautions might be appropriate in these cases – on the other hand, there's no ‘baggage' with a like minded property investor.
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