So you have decided co-buying is the best way to get on to the property and now it is time for research.Here are a few things you should consider before co-buying.
Should you co-buy as joint tenants or tenants in common? Most co-buyers will go with tenants in common as it allows them to go into a pre-purchase agreement and a declaration of trust highlighting what will happen in different scenarios, who owns what amount of the home and who is responsible for what.You can also pass your ownership to your relatives via your will in a scenario you die. Joint tenancy does not give you the same freedom and is therefore not a good option. With Joint tenancy, you both own equal shares of the property regardless of any unequal contributions and need each others permissions to sell or do anything to the property.
You should have a trust deed:
A trust deed or declaration of trusts allows you to stipulate who owns what part or shares of the home. It also creates a structure for you to stipulate what happens when either party wants to sell their share.e.g your co-buyer might have first options to buy you out.
Dangers of joint tenancy:
If you buy as a joint tenant, this means that if one of you dies the remaining shares of the property goes to the surviving co-buyer regardless of if there is a will in place.
What if both joint tenants die?
If both joint tenants die at the same time the property will pass on to the younger co-buyers relatives. This is because the law assumes the older co-buyer will die first and the younger co-buyer will have inherited their shares. This is not great for buyers who are older than their co-buyers and hence a big reason why joint tenancy isn't such a great idea.
What if a co-buyer wants to sell?
If one of the co-buyers wants to sell they will need permission of the other co-buyer. If they cant get permission then they will need to go to the courts to force the sale.
Co-buying is a very good way to get on the property ladder in record time and get a better property by pooling everyone's financial power together.
You should consider these factors when choosing a co-buyer
Can they afford to put a deposit down or maintain regular monthly payments
Their job security-
Do they have stable income or savings to cover unemployment phases.
Will you want to live with them for years and years to come
Their mortgage contribution-
What will they contribute and will it be equal for both the deposit and monthly repayments
Their credit score-
No point talking about the above if their creditworthiness does not match a lenders.
What happens if one of you dies or wants to sell the property? A declaration of trust will help iron this out
Division of space-
What part of the property will be your space and theirs, and which will be communal
Co-buying is a great way to get on the property ladder. If you are looking for a co-buyer for your first home or for your first Buy to let investment then join our homebae network to see if any co-buyers match your criteria.
What happens if you have unequal deposits?
If one of you contributes more to the deposit - say, 70% while you provide the remaining 30%, you may specify in your Declaration of Trust that when you sell the property the proceeds will be split in the same way (70/30). If you don't agree that in your Trust Deed (Declaration of Trust), the proceeds will be split 50/50 by default irrespective of how much each party contributed initially.
What happens if one of you earns much more than the other?
Similarly, if one of you earns more and, consequently, contributes more to repaying the mortgage, paying bills, etc.; you - again - may decide in the Trust Deed that you will be entitled to a greater share of the property. Without the Trust Deed agreement the presumed ownership is 50% share of the total property (when two parties are involved).