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According to Halifax, 63% of their completed first-time buyer mortgage applications are now in joint names (with two or more borrowers).
With mortgage rates soaring in recent months, there is no doubt that more and more people are considering buying their first home with someone else.
In this article, we look at the options for ownership when purchasing a property in joint names and a way to protect your financial interests with a declaration of trust.
There are two types of ownership: joint tenants and tenants in common.
As joint tenants, you will both own 100% of the property with equal rights, regardless of your respective contributions to the purchase price. Joint tenancy does not allow for the property to be passed on in accordance with your Will. Instead, the whole of the property will automatically pass to the surviving owner if one of the owners dies. In addition, when it comes to selling the property, all parties must agree to sell.
On the other hand, owning a property as tenants in common permits each owner a distinct share of the property. The property can be held in equal shares or specified shares depending on the situation– for example, 50:50 or 75:25. Unlike with joint tenancy, your Will can determine how your share in the property would pass on your death. If you decide to hold the property in unequal shares, a valid Will that clearly sets out who you would want to inherit your share of the property will minimise any ambiguity.
If you choose to hold the property as tenants in common, a restriction should be applied to the title upon registration of the property in your names. This restriction will prevent the property from being sold without the consent of both parties. The restriction also ensures that, when one owner dies, the property cannot be sold without the consent of the deceased owner’s estate.
Another mechanism to protect your financial interests is a declaration of trust (also called a deed of trust). A declaration of trust is a legally binding document that can be drawn up at the time of buying a property. It records the financial arrangements of everyone who has an interest in the property, detailing what share of the property they own, and what should happen in various eventualities. For example, it could set out what percentage of the proceeds each of you would be entitled to if the property were sold.
Setting out each person’s shares, obligations, and contributions from the outset avoids potential disputes further down the line.
Whether you are buying a property with your partner, relatives, or friends, it is imperative to consider carefully how you wish to hold the property. Failure to do this could result in unintended and unwanted consequences if your circumstances change.
Whether you’re considering buying a property in sole or joint names, please get in touch with one of our experts in our Residential Real Estate team.
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