Share and Share Alike – Borrowing Money vs Gifting
When it comes to buying property, many people buy with someone else. A partner, a friend, a spouse or possibly just with the help of family. Getting (and staying) on the property ladder can be hard, so you need all the help you can get.
Owning property with someone else can have consequences, so it’s important that you know going in, what can happen if you, or they, want to get out. This is quite a big subject so if it’s something that’s important to you, you might want to ask us for more details, but here are the highlights.
If you are buying with someone else, then you need to consider whether they are going to co-own the property, or if they are just lending the money to you.
If you are lucky enough to have a friend or family member lending you some money to help you, then these are some important details to consider at the outset.
- What are the terms of the loan – when do you have to pay them back and how much are you paying. Is there any interest and are you paying them any costs.
- What security are they going to have – most commonly it would be a charge over the property. This isn’t because there is any doubt that you’ll pay them back. We are sure that you will, but things go wrong. If something were to happen to you (such as death or bankruptcy) then the lender needs to know that their investment is protected.
- If you are also taking out a mortgage, make sure that the mortgage company knows about this loan. If anyone else is going to have a charge over the property, your lender should be aware. It’s a good idea to tell them as soon as possible because if your lender does have an issue with it, it might affect your plans and it’s best to know as soon as possible before you spend too much time or money.
If the person helping you buy the property also wants to be on the title deeds (ie they have a share of the property rather than just lending you the money) that’s absolutely fine, but there are still a few things you and they need to consider. For example
- If they currently own another property, then they will have to pay stamp duty at a higher level on the purchase of this property.
- If you own property together, either one of you can decide that you want to sell. It’s obviously easier if you agree, but if one of you wants to sell, and the other doesn’t, the one who wants out can force a sale. It can be messy and expensive, but it can be done. So if you are buying with someone else, and you are likely to want to stay longer than they want to be a co-owner, you need to talk to us about your options. Don’t assume that you are all in until you all agree you want out.
- If you are contributing unequal sums to the purchase and mortgage payments you should buy as tenants in common. That means that when it’s sold, the proceeds of sale will be split according to your contribution, rather than just 50/50. It’s a good idea to agree at the outset what the split is going to be, but an even better idea to make sure you stick to that agreement. So if it’s agreed that you are paying 60% of everything, if you end up paying more, without a variation to the original agreement, you could find that you’ve paid for something you haven’t had. And no one likes that.
- It might be a good idea to think about what your exit strategy is – if your co-owner wanted their money back, how would you deal with that. If you think this might happen at a time when you might not be able to afford to buy them out, and you wouldn’t want to move, then having the contribution as a loan, with an agreed repayment timescale may be safer.
The third option is that you are buying with someone who is going to live with you, such as a spouse or partner, which is probably the most common scenario. Some of the comments above apply to people buying together, but here are some important points
- Co-owners can buy as joint tenants or tenants in common. We would normally assume that couples will buy as joint tenants, particularly married couples, as their assets are shared, no matter how much each party contributes to the purchase. If the property is owned as joint tenants, then on sale, the proceeds of sale would be split between the owners equally, even if they had not equally contributed to the purchase and the mortgage. In addition, if one of the owners dies, their share automatically goes to the other co-owner, irrespective of what their will says. So if a husband and wife own a property as joint tenants, and the husband’s will says that he leaves everything to his kids from an earlier marriage, his share of the property will still go to his wife, because it doesn’t form part of his will. If you own property as tenants in common, then on sale the money is split in accordance with the contribution that they’ve made to the property. If one of them dies, their share will pass in accordance with their will, or in accordance with the rules of intestacy.
- You can change a property from being joint tenants to tenants in common. So, if you buy a property as joint tenants (eg with a partner) and then you end the relationship but don’t necessarily want to sell the property, you can agree to “sever” the joint tenancy so that you each own in shares according to your contribution, and so that your share wouldn’t pass automatically to the other owner(s).
- Whether you own as joint tenants or tenants in common, the property can be sold whenever one or more of the owners want to sell. You don’t need everyone to agree although obviously, it’s easier if you do.
- Sometimes, even though you’ve bought the property together, only one name will appear on the title deeds. That doesn’t mean that other person doesn’t have a right, it just means that it can be harder to prove what that right is, and that there is a risk that the property could be sold or remortgaged without their knowledge. If you are considering co-ownership, but it’s been suggested that your name should not be on the deeds, talk to us first before you make a decision.
If you are planning to buy a property with someone else, we hope that this has been helpful, but if this raises any concerns for you, please call us and we would be happy to explain the pros and cons depending on your particular situation.
Disclaimer – our articles are designed to give you guidance and information. There is no substitute for proper direct advice, particularly as everyone’s circumstances are different. If anything in this article may affect you, please contact us for advice that is specific to your circumstances.