As the average first time buyer deposit is higher than ever, buying with friends or family is fast becoming a popular trend. Coralie Phelan – Partner at Prince Evans Solicitors LLP – explains the pros and cons
The Pros and Cons
There are many advantages such as:
- Access to a wider choice of property with a higher deposit
- Someone to live with for companionship
- You can afford to get on the property ladder together when you could not do so alone
- You can both use Lifetime ISA (LISA) savings and bonuses
The disadvantages that need to be considered are:
- Personal differences might cause friction in the future
- Disputes may occur if one party wants to sell and the other wants to remain
If one of you defaults on the rent or mortgage the other will have to make up the shortfall
The disadvantages can be carefully managed from the outset with the right legal advice.
It is wise to consider what happens if circumstances change and one party wants to sell the property.
Your Rights as Joint Owners
In order to explain the legal position it is important to understand that property ownership has two elements
Firstly legal ownership, that is ownership of the physical land
Secondly a beneficial interest, that is your monetary interest
Your conveyancer will ask you to consider whether you want to own the property equally or whether you want distinct shares. This is a choice between holding as Joint Tenants or Tenants in Common.
Joint Tenants
- You hold the property in equal shares
- The property passes to the survivor of the two of you upon death
- You cannot leave your share to someone else in a Will
Tenants in Common
- You have distinct shares and these can be equal or unequal
- The proceeds of sale can be split to reflect initial contributions
- You can leave your share to someone else in a Will
- A Declaration of Trust can be drawn up to record how the sale proceeds will be split and the timeframe for sale
Dispute Resolution
It can be very difficult to consider a scenario where relationships break down, however living closely together can put pressure on relationships. It is important to ensure that you consider how matters will be dealt with if you fall out and wish to sell the property.
Disputes might be avoided if you instruct your conveyancer to draft a Declaration of Trust at the point of purchase, which sets out not only how the proceeds of sale will be divided but also the timeframe for sale.
Declaration of Trust
If you have a Declaration of Trust, it will set out the following:
- How you can bring the trust to an end to sell the property
- A timeframe for one party to give
notice to the other party of their intention to sell - Will allow the remaining party an opportunity to buy out the other
- Will allow a time frame for the sale of the property if both parties agree to leave
- How much each party receives from the proceeds of sale
Finally
In summary, there is a lot to consider when purchasing with friends or family. You should discuss your position with your conveyancer and they will be able to guide you through the process and assist you in making an informed decision in relation to joint ownership.
Purchasing with friends and family is a very good option for first time buyers and can give you the opportunity to achieve your dream of owning your own home.
At Prince Evans the vast majority of our clients are first time buyers so do get in touch with our friendly team to discuss your options. Email Coralie.phelan@prince-evans.co.uk or phone us on 020 8567 3477
First Time Buyer is an exciting bi-monthly glossy which takes a stylish and comprehensive look at all the options available, setting them out in an entertaining and informative way, and helping potential customers navigate their way through what is often a daunting and complex process. We dispel the myths, reinforce the facts and arm the reader with the tools necessary to make their homeownership dreams a reality.
