With the cost of both houses and weddings on the up, it’s understandable that people feel pushed to prioritise one over the other.
In our experience, many first time buyers are unmarried couples. And often they are helped with their deposit with the Bank of Mum and Dad, whether that is from the parents of one party, or both. Despite being in the day-and-age where marriage shouldn’t be the crux, it does help going in with the knowledge of the logistics of being an unmarried couple buying your first home together.
A typical example:
Let’s start with a typical example…
Stuart and Gillian are currently living together in a rented flat and have been living together as a couple for the past two years. They have separate bank accounts and have each been saving a little each month towards the deposit on their first property. They have a mortgage agreement with a bank or building society and have just offered successfully on a two bedroom flat in Leith for £200,000 with a Home Report Value of £180,000.
They are getting a mortgage of £160,000 and the remaining £40,000 is being funded as follows:
- Stuart’s savings of £5,000
- Gillian’s savings of £5,000
- A gift from Gillian’s parents of £10,000
Tip 1 – Understanding the Mortgage
The mortgage will be taken out in the joint names of Stuart and Gillian. That mortgage of £160,000 is a debt due by them jointly and severally. What does that mean?
So, although Stuart and Gillian may think as themselves as each being responsible (and liable) for only £80,000 each, that is wrong. From the mortgage company’s viewpoint, they are together and individually (that is, jointly and severally) responsible for paying off the mortgage.
In a nutshell, Stuart and Gillian do not borrow £80,000 each; they borrow £160,000 between them.
Tip 2 – The Title and Shared Ownership
The title to the property Stuart and Gillian are buying will contain the details of how they own the property. This is where it becomes a little complicated…
Option 1 – the title is taken in equal shares
This option is common. The title will be taken in the names of Stuart and Gillian equally. They will each own a 50% share in the property.
What does this mean? In simple terms, it means that Stuart and Gillian own the property in equal shares. And so, if they decide to separate and the property is sold, then the profits from the sale or losses on the sale will (unless they agree something different at the time) be shared equally between them.
However, it also means that they own their share independently and so, for example, if Stuart were to die, his share in the property goes to whomever he leaves it to in his Will, or if Stuart dies without leaving a Will, his share in the property goes to whoever is entitled to his estate under the rules of intestacy. The same applies if Gillian were to die first.
Tip 3 – Consider making Wills
For this reason, Stuart and Gillian would be recommended to consider finding out who would inherit their share of the property if they were to die without leaving a Will and also consider making Wills. More about this below…
Back to title and shared ownership:
Option 2 – title is taken in joint names and to the survivor
Again this option is common. The title will be taken in the names of Stuart and Gillian in equal shares but the title will also provide that on the death of the first of them, the deceased person’s share is automatically transferred to the survivor. So, if Stuart dies first his half share transfers automatically to Gillian, regardless of whether or not he makes a Will. The same applies if Gillian were to die first.
Option 3 – the title is taken in unequal shares
You will remember that in the above example Stuart is providing £5,000 towards the deposit and Gillian from her savings and the gift from her parents is providing £15,000 towards the deposit.
Now there is nothing to prevent the shares of ownership being split between you in whatever shares you agree on. But usually people tend to share ownership in equal shares.
But as in the example, it is possible for Stuart and Gillian to agree that account should be taken of the fact that Gillian is providing £15,000 towards the deposit and Stuart £5,000 towards the deposit. So, the title for example could be taken giving Gillian a 55% share and Stuart a 45% share.
Again, as with the Options 1 and 2 there is a choice to then be made between taking title in those shares full stop or taking title in those shares with the survivorship clause.
Tip 4 – Consider entering into a Cohabitation Agreement
A Cohabitation Agreement is something similar to a Pre-Nuptial Agreement. This can be useful in dealing with such practical matters as:
- Detailing who provided what towards the deposit for the property
- Who is responsible for what share of the monthly mortgage payments
- How additional capital payments towards paying-off the mortgage are to be treated
- And how the proceeds from the sale are to be divided between you
Tip 5 – More about making Wills
Living together is not treated the same way in law as being married. And so it is worthwhile considering making Wills to make sure that you provide for one another in the event of death.
Whilst the law (section 29 of the Family Law (Scotland) Act 2006 does allow a surviving cohabitant to make a financial claim on the estate of their deceased partner where the deceased partner died intestate (not leaving a Will) such claims must be made within a period of six months from the date of death. If the deceased partner died with a Will in place then the surviving partner is not able to make a claim.