The number of cohabiting couples buying a home together and submitting joint mortgage applications in 2020 rose by 60% year-on-year. In comparison, the number of joint mortgage applications submitted by those in civil partnerships rose by 15% in the same period. Whilst for married couples it was 11%.
Cohabiting families are the fastest-growing family structure according to ONS data, having increased by more than 25% between 2008 and 2018.
‘In 2020, the restrictions put in place by the pandemic meant that many couples had to decide between living together or staying apart for long periods of time,’ says Jack Miller, Mortgage Director at The Residential Mortgage Hub.
‘This can be seen to have heavily contributed to the 60% increase we saw in two-person cohabiting mortgages last year. With lockdown possibly speeding up the moving-in process for many couples.’
It’s becoming more and more common for partners to purchase a property together before marriage. Whilst it might not be the most romantic dinner conversation, it’s important to discuss financials and the possible challenges you might encounter together.
Speaking with our team of mortgage advisors we have collected six key questions couples should ask each other before buying a home together.
Q1. Have we been completely honest with one another?
Before beginning a property search or seeking advice, it is important that both of you are honest about your own finances.
This might include talking about any personal loans, hire purchase agreements, payday loans, missed payments on your credit file. Also the possibility that someone’s name might already be on the deeds of another property.
You also need to discuss how you’re going to share the mortgage payments, the bills and maintenance costs.
For example, one person might be providing more of the deposit whilst the other might be on a higher income and can therefore compensate by paying more towards the mortgage.
We know it can become awkward by having a discussion about what will happen if you were to fall out or break up, this may save you a lot of pain and trouble in the future.
Q2. Are we both on the same page?
This might seem obvious, but you need to ensure that both of you are happy with the location and type of property you end up with. You need to discuss your priorities and preferences. From choosing between an Edwardian terraced house and a new build, to whether you value a garden over a larger lounge.
This can be quite fun at this stage to think about the features you each like in a property. Maybe compromising on features or location so that you are both happy. It’s important to make sure that the property ticks a lot of boxes for both of you so that you can both be happy there – potentially for many years to come.
Q3. What are the mortgage implications?
Mortgage lenders will assess a joint application in the same way, regardless of whether it is for a married couple, a civil partnership, an unmarried couple or friends.
The advantage of borrowing as a couple is that if you both have a regular income, it can boost the amount you are able to borrow. However, each borrower’s credit history will also be taken into account.
If either party already has a poor credit record, their potential co-purchaser should consider carefully whether it is wise to take on a joint financial commitment with them. In this situation, even if a mortgage can be arranged, it is likely to be more expensive for both purchasers. We strongly recommend speaking with a mortgage advisor prior to you applying for a mortgage.
It is also important to know that both borrowers will be jointly and severally liable for the mortgage payments. This means that the lender will be able to chase either or both of the borrowers for full payment if they don’t meet the monthly payments. This is because the mortgage will be in both borrowers’ names. Therefore, if payments are missed, even if one isn’t living in the property, it will directly impact both credit ratings and any arrears will be under both names.
Q4. What form of ownership should we choose?
When buying a property together, unmarried couples have a choice over whether to register with the Land Registry as joint tenants or as tenants in common.
As joint tenants, you will both own the property equally. There are no separate, identifiable shares and in the unfortunate event that one person were to die. The surviving owner would automatically receive the other’s ownership in the property.
As tenants in common, you will each own separate identifiable shares in the property. These may be equal or unequal shares depending on what you decide. Under this form of ownership, if one person were to die, their share in the property would pass to whoever they have chosen to inherit it in their will. It is recommended that if you are contributing different amounts, you should consider whether to protect your respective shares in the property. As well as what would happen to the property if one of you was to die. In this event do you wish for the other to automatically receive your share? Or do you have a will that you would like the property to pass under instead?
Often, the choice comes down to whether or not you will be contributing equally to the deposit and mortgage.
Joint tenancy is a popular choice for couples and can often mean that it’s a little less complex with fewer legal documents as there isn’t any special paperwork required.
However if your financial contributions to the property are unequal, it can be worth considering whether you’re both happy with this arrangement. Couples might prefer to opt to be tenants in common if contributing different amounts for the deposit or mortgage repayments. This is also a popular option for friends purchasing together, who want to keep their finances separate.
Q5. Should we create a Declaration of Trust?
A Declaration of Trust is a legally binding document which will show the financial arrangements and intentions agreed between joint property owners at the time of purchase.
Although this is not required by law, any tenants in common should draw up a Declaration of Trust. This makes the ownership shares much more transparent and easier to prove in years to come.
It can include how much money has been invested by both parties. As well as the percentage of the property each person will own. It can be a very important document in the event of a split. As it explains how the sale proceeds of the property should be divided between the parties, after the mortgage and legal fees are paid off.
Q6. What happens if you break up, but one person refuses to sell?
The bottom line is that, both parties will need to agree to sell. Whether they own the property as tenants in common or as a joint tenants.
If you can’t come to an agreement on what to do with the property, you can try to force a sale. However, the process may be very stressful, time-consuming and expensive. This is where it may be best to consider a Declaration of Trust. In the document you can set out what each party can do if the other wishes to sell.
Get in touch
We strongly believe it’s best for first time buyers to have as many options as possible available to them. Contacting a mortgage broker means you will have access to a number of different options, lenders and mortgage rates.
To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch.
