The objective of Co-Own is to find an alternative way of buying a home that allows friends or family members to financially team up to purchase and own property. Buying a property together is a way to get on the property ladder sooner.
Co-owning is become especially popular with:
- Friends who want to stop renting
- Siblings entering the market together
- Couples who want to co-buy
- Parents teaming up with adult children
Benefits and issues of Co-Ownership
Co-ownership has the distinct benefit of the co-owners sharing deposit and mortgage repayments, making it easier to afford a home that would usually be unattainable for an individual.
However, there are some significant risks and challenges with co-ownership:
- Not all lenders offer home loans for shared ownership. From a lender’s perspective there are more risks involved when multiple parties will own the property, especially if those parties are unrelated.
- If one party defaults on their share of the mortgage repayments, the other party may become liable to cover the shortfall as credit issues for one party can affect the other.
- There may also be issues if the individual wishes to sell the home before having paid out the third-party entity. If the entity’s name remains on the title, it must give consent to a proposed sale which may not be in its interests.
- Disputes may arise over use, improvements, or sale of the property.
What you need to know before you sign anything
A co-own mortgage comes with responsibilities. Before you sign anything, you need to consider:
- Ownership structure – joint tenants or tenants in commonFriends who want to stop renting
- Exit plans – what happens if someone wants to sell or buy the others out?
- Future borrowing – a co-own mortgage sits on each person’s credit file and can affect personal lending later
- Independent Legal Advice – due to potential risks a customer could face getting into a co-own arrangement, it is recommended that you seek independent legal advice before committing to a co-own arrangement
- Co-Ownership Agreement – it is recommended that you put an agreement in place that outlines contributions, obligations and what happens if things go wrong
There are two main types of co-ownership
- Joint tenancies: Each co-owner has an equal undivided share in the entire property. This option is commonly used when the two parties are a couple.
- Tenancies in common: Each co-owner has a separate, defined share in the property. Tenancies in common are more frequent when there is less, or no, relation between the co-owners due to the separate nature of the shares. Tenancies in common are almost always preferred for unrelated co-owners, particularly where contributions are unequal and co-ownership is temporary, or investment based.
A key difference between the two forms of ownership is that, upon a co-owner passing away, a joint tenancy interest will automatically go to the surviving owner, but a tenancy in common share will become part of the deceased’s estate and be distributed in accordance with their will.
Want to find out more?
If you’ve got a trusted friend or family member who in the same position, it could be the perfect time to make a move together to get on the property ladder. We recommend you seek expert help from one of our experienced Mortgage Advisers to discuss your options.
