Concerns when co-purchasing and Conveyancing on a house or flat
With first-time buyers finding it ever harder to get a foot on the property ladder, many are increasingly tempted by the lure of purchasing a property in conjunction with friends or family members.
In addition to the usual practical considerations however, there are several additional risks to this practice which must be considered during the Conveyancing process.
The present level of house prices, especially in London and the South East, means that even for would-be buyers on an average salary of around £23, 000, buying a house is out of the question.
Today, most mortgage lenders require borrowers to find a deposit of at least 10%, and more funds will be needed to cover stamp duty, Conveyancing costs and other expenses. So-called 'property experts' are increasingly advocating the benefit of buying with a friends or associates as a solution to this.
Having shared the tenancy of a house while at university, or rented jointly with a friend, for some this can be a logical and comfortable decision. Unfortunately, Conveyancing Solicitors have noted that as this trend increases, not all such purchasers have fully considered the hazards of such a choice.
In the rush to get on the property ladder, less risk-averse purchasers may be encouraged by their lender or estate agent to enter into a mortgage with friends without sufficient security in place, or awareness of the danger, if one or more members of the partnership are unable or unwilling to continue with repayments.
Finding a co-purchaser and getting a mortgage
Many lenders now offer 'mates' mortgage' deals, which allowing the income of up to three friends to be taken into account to boost borrowing capacity.
Most first-time buyers will hope that any such arrangement will only last for a limited period until they are earning more, and perhaps getting married, when they can manage to buy a home for themselves. They should therefore consider what framework exists to ensure that they can terminate the sharing arrangement if necessary, and recover their share of any increase in value.
Appropriate arrangements must therefore be included during the Conveyancing process.
Although there are many advantages in co-buying, such as sharing the deposit and purchase costs, there are serious pitfalls to consider:
- Additional legal costs – the agreement between the co-buyers should be recorded in a formal deed. This will entail additional Conveyancing fees.
- Disagreements – as with any other ongoing relationship, any number of disagreements may arise when sharing ownership. This could be about such things as paying for maintenance and repairs, or one owner wanting their partner to move in.
- What happens if one owner wants to sell their share of the house before the other party is ready to move on?
- What happens if one owner loses their job, or dies?
- Financial complications - Working out finances can get complicated, especially if one party pays more of the deposit than other.
All of these can be covered in a suitable form of agreement, and as such arrangements become more common, Conveyancing Solicitors should have no difficulty in preparing a suitable document for a reasonable charge.
Legal implications for joint ownership
While there is plenty of legislation and case-law relating to joint ownership by husband and wife, that generally does not apply to other joint ownership situations. This is one reason why any such arrangements must be fully spelled out in some form of agreement which should be completed as part of the Conveyancing.
One particularly important point to note is that in England and Wales there are two ways in which two or more people can own a home jointly; one is as 'joint tenants' and the other as 'tenants in common'. [the word 'tenant' here has nothing to do with leases and renting, it simply denotes someone who 'holds' or owns land. The principal difference is that when one joint tenant dies, the property automatically passes to the survivor; this may be fine for a husband and wife, but is unlikely to be appropriate for friends buying jointly.
If the two buyers are not putting in equal amounts, then the agreement can specify that they will own in specified shares. Arrangements can also be specified if one owner will be paying a different share of the mortgage payments to the other.
It is a good idea for the agreement to include some provision for any disputes to be referred to a mediator. This could either be a family member, or a professional. The latter would expect to be paid, but this alternative dispute resolution (ADR) as it is known is usually a much quicker and cheaper alternative to litigation.
Liability for mortgage repayments
Anyone buying jointly should be aware that the liability for the mortgage payments is what is known to lawyers as 'joint and several' which means that the lender can sue either party for any arrears.
So if one owner loses their job or becomes unable to make the repayments, the other will have to pay the whole amount or otherwise face the possibility of the lender re-possessing.
There is no reason why co-owning should not be a satisfactory way for first-time buyers to acquire a roof over their heads, provided that all parties understand their obligations, and the potential dangers.
Sharing the cost may enable two or three friends to buy in a better area, and if house prices increase then each may receive a larger amount when the time comes to sell than if they had bought individually.
It is strongly recommended that, before proceeding too far, they should discuss their proposed arrangements with their Conveyancing Solicitor and make sure that a mutually acceptable deed is agreed.