Purchasing a home with another person can be an attractive prospect; you can pool your savings together for a deposit, boost your buying options, and share the burden of the monthly repayments.
In the UK, up to four people can co-own a property together, but exactly how the property is divided up and how the mortgage works depends on whether you choose a joint tenancy or tenants in common arrangement.
This guide explains the pros and cons of each, the key similarities and differences, and other points you should consider before making a decision surrounding a co-ownership mortgage arrangement.
What is a joint tenancy?Joint tenancy is a type of ownership in which each person owns a 100% stake in the property. Joint tenants must make decisions collectively: you’ll need to take out a joint mortgage to buy the property, and everyone must be in agreement if you decide to sell.
Joint tenants are not at liberty to leave their ‘share’ of the property to a third party in their will. If a tenant dies, ownership will automatically be passed on to the remaining co-owner(s). This is known as 'right of survivorship' or ‘joint owners with a survivorship clause’ in Scotland.
Due to the nature of joint mortgages, they are most suited to those in long-term relationships or married couples, although they are fairly common between other family members.
Pros and cons of a joint tenancyThere are a number of advantages to joint tenancies, including:
- They are the most simplistic form of property ownership.
- All parties have equal rights and own an even share of the property.
- Well-suited to couples who want their partners to inherit their share when they pass away, without complication.
- They do not allow for unequal ownership.
- The proceeds from the sale of the property are split 50/50 regardless of how much you've contributed.
- Ownership cannot be passed on to a third party after you pass away.
What is a tenancy in common?Tenants in common, also known as ‘joint owners’, each own a separate share of a property. The shares can be divided up equally, or in accordance with how much each person has put towards the deposit or is able to contribute to the repayments (e.g. 50/25/25).
Theoretically, each tenant can mortgage their own share, although not many lenders will agree to this so joint mortgages are more common.
As with joint tenancies, you must all be in agreement if you decide to sell up. However, tenants in common are able to leave their share of the property to whoever they like in their individual wills.
This type of co-ownership is typically used by friends, or relatives who are buying together and want to split the shares proportionally.
Pros and cons of tenants in common If you’re buying with friends or other family members, there are a number of advantages to being tenants in common.
- Property shares can be split evenly or proportionately between each party.
- All co-owners have equal rights to the property, regardless of share size.
- You can leave your share to whoever you want in your will.
- Tenants can sell their shares to anyone, without the permission of other co-owners.
- Unmarried co-owners won’t automatically inherit the other’s share when they die.
- All parties need to be in agreement to sell.
What are the similarities between a joint tenancy and a tenancy in common?As both are types of multiple-party ownership arrangements, there are plenty of similarities between joint tenancies and tenants in common.
Multi-person ownershipUp to four people can be the legal owners of a property in the UK, and both joint tenancies and tenancies in common can accommodate. This makes it possible to get a mortgage together as groups of friends or family members, rather than just married or cohabiting couples.
A single mortgageWhile it is technically possible for tenants in common to obtain separate mortgages to pay their share, this is very rare and most lenders would insist on a single, multi-applicant mortgage tied to the property. A joint tenancy always has a single mortgage.
The type of tenancy doesn’t usually have much impact on the mortgage, and often the application is put through with multiple applicants listed before the choice of joint tenancy or tenants in common is even confirmed.
Pooling funds for a depositOne of the great advantages of a joint mortgage is the ability for multiple people to pool their resources into a deposit. This is likely to give applicants access to a wider range of mortgage deals, more competitive interest rates, and potentially a larger mortgage.
Joint responsibility for mortgage paymentsWith a joint mortgage, all applicants are responsible for making the monthly repayment. While this can be beneficial (as each person’s individual amount is lower and easier to cover), it can also be a worry, as should one person find themselves in financial difficulties, the others are liable for the shortcomings.
This joint responsibility will also have an impact on each individual’s credit report, as co-owners have a financial tie to each other and one person’s bad credit score can negatively impact the others (and vice versa).
Owners must agree to sell or remortgageWith any joint ownership, all co-owners must be in agreement to sell the property or take out any other mortgages secured on the house, including refinancing the mortgage or equity release.This way, all tenants are safe in the knowledge that their home cannot be sold ‘beneath them’ without their knowledge.
Stamp duty and first-time buyersIn order to be eligible for first-time buyers relief for stamp duty, which means there’s no tax to pay on the first £300,000 of the property, all the applicants have to be first-time buyers.
This means that if a single applicant already owns a home and is providing their support and investment to help the others, the stamp duty costs can be significant. You can read more about first-time buyer mortgages here.
Self-employed or bad credit issues
If one of the partners has a complicated financial situation, such as those that arise from being self-employed or from previous bad credit or insolvency issues, then it’s likely to have an impact on the entire mortgage application.
What are the differences between a joint tenancy and a tenancy in common?
While there aren’t a great number of differences between joint tenants and tenants in common, it’s important not to overlook them because the implications can be significant.
The share of ownership
One of the most significant differences between a joint tenancy and tenants in common ownership is how the percentage of shares can be divided up.
With a joint tenancy, all partners are considered to own the entire property in equality. If a sale occurs, then the equity would be split equally between the owners. All responsibility and rights are equal.
Most married couples tend to opt for a joint tenancy for the simplicity of this division, however it can cause conflict or underlying resentment if one person has paid more into the property than the other.
Being tenants in common provides a solution; under this system, each partner has a defined percentage share of the property and it can be split in whatever way you all agree.
It could be a 70/30 split between two people, for example, or a four-person system set to 40/40/10/10. Any configuration of shares is possible, and a renegotiation of those shares is possible at a later date should the situation change.
For example, if one of three partners has greater savings and a better paid job at the time of application, they might request a 40/30/30 arrangement in the first instance. Should the other owners later improve their finances and take on a greater share (as well as offering to pay to equalise the deposit), a change to a more equitable exact three-way split could be made.
Though shares may not be equal in a tenants in common arrangement, it does not affect any owner’s right to be fully consulted on decisions such as future sale or remortgage.
Inheritance after a death
The second key difference between joint tenancy and tenancies in common surrounds what happens to the property share following the death of one of the owners.
For tenants in common, the single share that belonged to the deceased becomes part of their estate, and can be inherited by their heir(s) as dictated in their will. If they die intestate (without a written will), the share will be passed to their spouse or children as the intestacy law dictates.
In joint tenancy, the property is automatically passed on to any surviving owner(s). In the case of a married couple, this means the surviving spouse immediately becomes the full owner of the property. This level of ownership supersedes a will, so there is no provision for a joint owner to leave their property to anyone else.
Life insurance and the mortgage
If the deceased had life insurance in place to deal with their portion of the mortgage, then it will be paid as appropriate and shouldn’t cause any further worry for the surviving owner(s).
If there was no life insurance in place, then the burden of the mortgage would be shared by all living owner(s) – including the estate of the deceased. Most mortgage lenders are flexible after death and allow a few months grace for the surviving parties to get affairs in order and reach a suitable arrangement, but in some extreme cases it could result in the house needing to be sold to pay the outstanding debt.
Usually however, such an extreme isn’t necessary and the mortgage can be appropriately taken on by the surviving owners or refinanced as needed.
Under joint tenancy there is no chance of an inheritance tax bill. As the property is wholly owned by the surviving partners, there is no tax due until the final living owner dies and the property is inherited by their heir(s).
With a tenancy in common, however, inheritance tax is due on the estate of the deceased, which includes their share of the house. Depending on the value of the home and other remaining cash and assets in the estate, this could mean the house would need to be sold to pay the outstanding tax.
Inheritance tax is one of the main reasons people opt for a joint tenancy over tenants in common arrangement.
Joint tenants vs tenants in common: a summary
The decision to buy a home as joint tenants or tenants in common is an important one.
The choice you make will most likely be dictated by the type of relationship you have with the other co-owner(s), but there are other implications which should be considered before reaching a decision.
The table below summarises the differences in joint tenancy and tenants in common arrangements in various scenarios.
|Joint tenants||Tenants in common|
|How is ownership split?||Each tenant owns 100%.||Tenants can own even or proportionate shares.|
|Are financial contributions reflected in ownership?||No.||Yes.|
|What happens when a co-owner passes away?||Ownership passes to the remaining owner(s).||Ownership passes to the will beneficiaries.|
|Do all parties need to be in agreement before selling?||Yes.||Yes.|
|Is a deed of trust required?||No.||No, but it is recommended.|
How to switch to co-ownership arrangementsIt's fairly simple process to change the land registry deed to reflect a new tenants in common arrangement to replace a previous joint tenancy, or the other way around.
There are plenty of situations in which this may be appropriate, such as buying out one partner, or going through a divorce and having one ex-spouse remain in the home while the other stays on as a part-owner.
Switching from a joint tenancy to tenants in commonTo switch from owning a property as joint tenants to tenants in common is known as ‘severing' a joint tenancy.
You, or a legal professional on your behalf, will need to submit an official form ('form SEV') to HM Land Registry. In order to do this you’ll need to have sought permission from the other tenants, or have provided them with written notice beforehand.
Even if the other joint tenants don't agree, it’s still possible to sever a joint tenancy. The most common way to do this is to take out a very small mortgage on your ‘share’ of the property (this can be little as £1), then repay it immediately.
How to switch from tenants in common to joint tenantsTo change from tenants in common to joint tenants, you’ll need the agreement of all the other joint owners.
You or a legal professional will need to fill in a new or updated trust deed, and submit it alongside any supporting documents to HM Land Registry’s Citizen Centre.
If the title deed to your property contains any restrictions preventing you from making the switch, you'll need to apply to cancel it by submitting an additional form (‘form RX3’), to HM Land Registry.
What happens if you want to end joint ownershipRegardless of whether you’re joint tenants or tenants in common, you all have equal rights to live in the property and must be in agreement if you make the decision to sell.
This can be problematic, especially if you’re splitting up with a partner but one of you wishes to remain living in the property, or you live with a friend or family member who wants to relocate and take their share of the proceeds.
If you find yourself in a position where you want to sell but the remaining co-owners don’t, you may have to seek a court order - but this is only advised as a last resort. Drawing up an agreement of trust before you enter into a joint ownership arrangement can prevent the need to resort to legal proceedings later on.
What is a deed of trust?A deed of trust, also known as a declaration of trust, is a legally binding document that states the division of ownership of a property. It is commonly used by tenants in common who have paid different amounts towards the purchase of a home.
It allows all parties involved to know where they stand in the event of: someone being unable to pay their share of the mortgage, one person wanting to be bought out, or the property being sold.
Having a deed of trust in place from the offset provides co-owners with peace of mind surrounding their financial investment, and can help prevent disagreements later down the line.
Seek co-ownership advice from an expert It can be hard to get your head around all the different variables that go into co-ownership mortgage arrangements, not to mention the nitty gritties surrounding potential stamp duty charges and ownership rights.
If you are looking to buy a property with friends, family members or a partner, whether in its simplest form or in more complex circumstances, we have specialists on-hand to advise you.
From choosing the right arrangement for your individual situation, to seeking out the most suitable lenders and favourable repayments plans, our team of experts are adept at securing customers with affordable co-ownership mortgages.
Not only that, we have access to niche lenders and specialist deals you won’t find on the highstreet or online comparison sites. Simply fill out our online contact form or give us a call on 02380 980304 for some free, no-obligation advice.