Your Conveyancer should always ask whether you want to own the house as joint tenants or tenants in common. If you have contributed equally to the deposit, will be paying the mortgage and all bills equally and are happy that should either of you die the house will belong to the other partner you can choose to be joint tenants. In all other cases you must request tenants in common and have a declaration of trust or a living together agreement.
It is likely that a large cash deposit will be needed. If you are not paying the same amount it would be usual to give you each a % of the value of the house to reflect the capital paid. This is fairly straightforward and means that if the house goes up in value you will get more, but if it goes down you will lose part of your capital.
The difficult area is payments on the mortgage. One partner may have a better paid job and therefore be able to pay the mortgage whilst the other partner might be providing the deposit. Remember the mortgage is mainly interest but, of course, if that person was not paying the mortgage they might be able to save. So should the person paying the mortgage get some of the capital deposit the other partner originally put down? The house could not be bought without both the capital and the income to pay a mortgage. What is certain is that if you do not discuss this before you buy the house should the relationship fail it will be difficult and expensive to resolve – so sit down, calmly and carefully discuss all the issues and reach an agreement which can then be put in writing and signed.
Many parents help their children with the deposit for the first house but should it be a gift or a loan. For the parents – they need to think about what happens if the relationship breaks down.
Gift –
Have something in writing to record it is a gift and the date. If there is nothing in writing to say it is a gift you might be asked to pay it back.
Should the person who gives it to you (the donor) dies within 7 years the gift to you must be disclosed when their estate is administered. In some cases the gift to you could mean Inheritance Tax will be payable on their estate.
The house owners need to record what will happen to this money if they split up – for example will it belong to them equally or will the person who paid the deposit get back that sum or a % of the house sale proceeds which represents the share of the original price and what if the house goes down in value
Loan –
Will interest be payable and if so when and how much
Will your mortgage company agree as they must be told
What will happen if the donor dies – will you have to find the money straightaway
For the donor – is this best so they can have the money back if they need it and also have protection if you split up.
If one person is going to pay more of the mortgage payment than the other think carefully what is fair should you split up. Most of the mortgage payment is interest not a capital repayment.
For additional information on this article please contact Jean Newton, Partner on 01905 721600 or via email jn@parkinsonwright.co.uk