James says: “With the average house in England setting buyers back £268,000, for many the only feasible way to step onto the property ladder is to do so with their significant other.
“Many might see purchasing a home with their partner as the natural ‘next step’ in a relationship, but it’s important for couples to understand the financial implications of taking out a mortgage together and how previous financial decisions may affect this.
“Outlined below are some ways to protect both of your finances if you decide to enter into a joint mortgage with a partner:
Understanding your mortgage options
Joint mortgages are the usual solution for partners, and are also available to married couples, unmarried couples, civil partners or even just friends or relatives. Legally, everyone named on the mortgage is responsible for making payments, even if you have a joint mortgage where one person is paying.
According to the ONS, cohabiting unmarried couples are the fastest growing family type in the UK, with a larger number of couples deciding to purchase a home prior to getting married. Most unmarried couples will opt to be joint tenants, where both parties have equal ownership of the property. This means that if one person were to die, the other tenant would automatically inherit the property.
If you and your partner earn different amounts and would like to contribute different amounts to the mortgage, or would like the difference in contributions to be financially protected should your relationship break down, then you can opt to become ‘tenants in common’. This will allow you to split the shares in the home in whichever way you decide, sell your share in the property separately, and leave your share of the property to someone else in your will.
Your partner could affect your credit rating
Before committing to a joint mortgage with a partner, it’s important to understand their financial situation and if their financial history could negatively affect your chances of getting a mortgage.
Lenders will run credit checks on both of you - as well as asking to see your bank statements - before offering you a home loan, so if your other half’s got a history packed full of missed payments, direct debits to gambling sites, and a series of maxed-out credit cards then no matter how spotless your own record is it will be a struggle to find a cheap offer.
More than that, taking out a product with another person means that your credit reports will become linked. That means their ratings will affect you going forward even when it’s just you applying for something.
Before taking out a mortgage it makes sense to check both reports and make sure there are no mistakes on them, and take any simple steps you can to boost your creditworthiness - for example registering to vote at your current address.
Discuss salary discrepancies and financial responsibilities
If you plan on purchasing a home together, it can make sense to pool money into a single bank account for bills. You might even find one that offers cashback for using it that way.
However, for those earning significantly less than their other half, this could pose some uncomfortable issues when it comes to splitting everything 50/50. A compromise of paying a percentage of bills based on individual incomes could be a fairer way to divide outgoings.
In addition to safeguarding yourself if your relationship were to break down, keeping your own, separate bank accounts open will allow you to continue to still manage your own personal outgoings such as mobile phone bills or non-essential spending.
Consider longer-term lifestyle choices
Equally as important as making the decision to buy a home with your partner is the matter of where you’re going to live. Chances are you will be there for a number of years, and you will want to make sure that the investment makes sense both practically and financially.
It’s wise to sit down with your other half and discuss the topics that could have an impact on the kind of property you’d need to buy to fit in with your future plans. Are you planning to have children in the near future, and if so what are the local schools like? Could a new job or career path mean you need to suddenly move and sell up? Are house prices in the area increasing or decreasing? How much money will it cost to make any renovations to a property?
Understanding one another's priorities and goals prior to making any substantial financial commitment could save you a lot of hassle and money in the long run.
Planning for the end
The harsh reality is that not every relationship lasts - and things get complicated when there’s a massive financial commitment that’s jointly held in the mix.
That means it will make sense to sit down with a lawyer and draw up a simple document ahead of the purchase outlining what will happen if one of you decides to sell up. These don’t need to be incredibly detailed - but so need to be correctly done - something simply stating that either of you can sell with or without the other person’s permission for example.
Of course, that’s only one of the ways the relationship can end, which means it’s also important to get a life or critical illness insurance policy in place that will cover the mortgage if one of you is no longer able to work. Having a suitable policy in place means the other won’t be forced to sell up at a time they will doubtless have a lot of other things going on to worry about.
But make sure to shop around for this, as there’s no need to take a policy from your mortgage provider in order for your debt to be covered when it pays out and you could find one that’s suitable for far less with someone else.
