In this article we look at the situation where you are buying a house with a partner to whom you not married to nor in a civil partnership with. There are certain safeguards available to married couples and those in a civil partnership that are not available to couples who are cohabiting or two people who pool their resources to buy a property together but who are not in a relationship.
There are a number of things to consider when you decide to buy a house with a partner.
What happens if there are different contributions to the deposit?
Let us look, first of all, at how the purchase is funded.
Many properties are purchase using a deposit and a mortgage. If two people are buying a property together, the first thing to look at is what contribution each of the partners make to the deposit. On many occasions, the contributions are unequal with one party contributing more than the other party. That might be fine if you are in a relationship when you buy the property, but what happens if the relationship breaks down after you’ve bought the property?
If the title to the property is held in joint names, then, in the absence of any evidence to the contrary, when the property is sold, the proceeds are divided equally between the parties. To overcome this issue, before you buy the property, you can enter into a cohabitation agreement which clearly sets out who contributed what by way of deposit and how the proceeds are to be split when the property is sold.
There are a couple of ways this can be dealt with. You might decide that each party will receive the amount of their deposit back and then any balance over and above that is divided equally. Alternatively, you may agree that the proceeds of sale are shared in the same percentages as the deposit contributions. The question may not arise at all if you decide to use the entire free proceeds to buy another house.
Whatever you do, if you are in this situation, you need to think about this.
What about the title to the property?
If you are buying with another person and taking a joint mortgage, then both your names must be on the title to the property. This gives rise to some options on how the title is held.
The title can either contain a survivorship clause or not. If it contains a survivorship clause, that means that on the death of one of the parties, their interest in the property is automatically transferred to the surviving party.
However, if the title does not contain a survivorship destination, that means on the death of one of the parties, you will have to consider who is entitled to their share in the property. As we said in the introduction, there are safeguards for married couples but not for cohabiting couples or two people who have purchased together.
In such circumstances, the deceased party’s share of the title will pass to family members (if there is no Will) or to whoever is entitled to it (if there is a Will). This can be particularly difficult for the surviving party because they would end up owning the property with someone else – and that person might want to realise the value of their share in the property!
What happens if one party wants to sell?
This can be a serious problem, bearing in mind it is your home. The first option is usually to determine if the party who wants to stay in the house can afford to take on the full mortgage. If they cannot, that then becomes a problem. This can be particularly difficult if one of the parties has died and the surviving party needs to deal with the deceased party’s relations when they wish to realise the value of their interest in the property.
If a cohabitation agreement is in place, situations such as this can be managed. It may mean that the property will have to be sold, but the actual process can be controlled to ensure that there is an orderly exit from the property.
This is a complicated field which requires consideration about whether a cohabitation agreement is required and whether the title should or should not contain a survivorship destination. Importantly, the parties should also consider making Wills in order to ensure that the surviving partner is not faced with what might be a very difficult situation are a time when they are mourning their loss.
If you are thinking about buying with a partner and wish to discuss all aspects of your purchase with us, please get in touch by filling in the form on this page.