When you go to buy a house with another person or persons, your conveyancing solicitor will ask you if you want tenants in common or a joint tenancy mortgage. There are various factors to consider while deciding which choice is best for you. The form of ownership will affect what you can do with the property if one of the parties dies or decides to sell.
What are Tenants in Common Mortgage?
Tenants in a common mortgage enable two or more people to share ownership of a property. Long-term partners typically use it, but it can also be a useful tool for parents who want to protect their investment while assisting their children in climbing the property ladder.
Tenants in common mortgages allow each participant to own a portion of a property. The shares do not have to be equal; they could, for example, be based on the proportion of each party’s deposit or mortgage payments.
Tenants in common arrangements must be documented in a separate legal agreement from any mortgage papers. Part of the legal procedure for either buying outright or with a mortgage will ask how you want the ownership to be structured, with joint tenancy arrangements being one option. The fact that you own a minority share of a property does not imply that you can only utilise a portion of it: you have the right to use the entire property.
Tenants in Common Mortgage Reasons
These agreements are worthwhile to explore in a variety of situations, including when:
- A group of friends pool their resources to purchase a home.
- Non-married couples buy a home together, but each brings a distinct amount of money to the table that they want to preserve.
- Parents desire to assist their children in purchasing a home.
- Long-term spouses who have children from a prior marriage wish to ensure that if they die, their children receive a certain percentage of the earnings from the sale of their home, rather than the proceeds going to their partner by default.
- Older couples who want to secure their portion of a property in the event that one of the partners needs to enter a care home and requires funding for care-home payments.
What is the Procedure for Tenants in Common Mortgages?
Each owner has their own portion of the property with tenants in common, which they can pass on in their will.
A joint tenancy mortgage does not have to be equal; it might be 50/50 or 70/30, for example, so it could be suitable if applicants are putting down various amounts of money or making mortgage payments.
Tenants in common may be appropriate if you’re purchasing with a group of friends, but there are other situations where it makes sense.
The specialists we deal with can assist you in calculating your tenants in common mortgage payments or joint tenancy mortgage payments.
Cohabiting couples with children from a prior relationship could register as tenants in common to ensure their children benefit from their wills.
It might also be used by an elderly owner who lives with a partner and wants to ensure that their entire home is not used to cover care home fees.
Factors To Consider Before Obtaining a Tenants in Common Mortgage
Before signing tenants into a common agreement, it is critical to evaluate all possible outcomes. It’s worth getting together to talk about:
- What would happen if one of you was unable to make your mortgage payment?
- What if one of you decided to sell your stake in a few years?
- How will decisions about the house, such as home renovations, bills, and who will live there, be made?
- If the other tenants died, who would inherit their part of the property?
How are Tenants in Common Mortgage Calculated?
Online calculator tools can only give you a rough idea of how much you can borrow and how much it will cost you in total, but understanding how a lender calculates these things can give you a better idea of the deals you will qualify for.
Determining ownership
Online calculator tools will only give you a general notion of how much you can borrow and how much it will cost you in total, but understanding how a lender calculates these things can give you a better picture of the deals you will qualify for.
Affordability Calculation
If you want to calculate how much mortgage you can afford to borrow as tenants in common, lenders consider income from all applicants, regardless of ownership type or amount.
Most lenders cap their lending at 4.5 times salaries, some at 5, and a few at 6.
Cost estimation
If you want to figure out how much a tenant’s common mortgage might cost, you should know that the rates and deals are the same as any other mortgage. The form of ownership has little to no bearing on the products available to you.
Eligibility for a Tenants-In-Common or Joint Mortgage
Borrowers must be ‘jointly and severally’ liable to pass lenders’ criteria checks, whether on a joint mortgage or tenants in common. If one of the owners fails to pay half of the mortgage, one of the other owners must cover the difference.
When it comes to acquiring a loan, there aren’t many variations between the two models — it’s not a case of having a joint tenancy mortgage or tenants in the common mortgage.
Indeed, the solicitor will only speak to you about how you wish to acquire the house after the advisor has advised a mortgage, submitted the application, and secured you an offer. This is the time to decide whether you want a joint mortgage or tenants in common, though it’s always a good idea to know what your goals are ahead of time.
Depending on the lender, up to four people can be listed as legal owners of a property.
If the property is sold or remortgaged, all of the owners must agree, otherwise, the courts will be engaged if one of the owners tries to force a sale.
Tenants in Common Mortgage Benefits and Drawbacks
Advantages of a Tenants in Common Mortgage
- Instead of you sharing equal ownership of the property, tenants in common mortgages provide for flexible ownership of shares.
- You can leave your share of the property to anyone you want: it does not automatically pass to the other owner(s) of the property when you die.
- If one of the owners dies, the remaining owner(s) should be entitled to sell the asset or a portion of it without having to wait for a probate court judge.
- Tenants in common can be an effective tool for preventing a home from being used to pay for care facility payments. Ownership of a property automatically falls to the survivor under joint tenancy, and if they move into a care home, the entire property could be utilised to pay the expenses. Under tenants in common, the first person to die may leave their share to someone other than their spouse, and that share may not be sold forcibly to pay care facility expenses.
Disadvantages of Tenants in Common Mortgage
- Tenants in common are more complicated than joint tenants. A Deed of Trust, also known as a Declaration of Trust, will be required, which will add to the expense of establishing this arrangement. Each party will also require a will to specify who will receive their share if they die.
- Disputes can arise if a Deed of Trust establishing share ownership is not written up at the time of acquisition.
- A party to a common mortgage may sell their portion to a new owner without the agreement of the other parties. As a result, you may find yourself co-owner of a property with someone you don’t know.
- A financial arrangement with someone, such as a tenant-in-common mortgage, might have a significant impact on your credit score. If the other member of your joint mortgage has poor credit, it can jeopardise your application for a joint mortgage, and missing or late payments during your mortgage term will appear on your credit report even if you were not responsible for the missed payment.
How can I Apply for a Tenants-In-Common Mortgage, and How Much Money Can I Borrow?
A joint mortgage can be applied for directly to lending institutions, through a mortgage broker, or through a comparison website. Then, you’ll need to hire a lawyer to draft a Deed of Trust that specifies share ownership as well as the tenants in a common arrangement. You should direct your solicitor to have the tenants in common agreement registered on the title deeds at the Land Registry.
Your income and credit history are two factors that lenders take into account when approving loans, which determine the amount you can borrow.
Is it Possible to Convert a Tenant in Common Mortgage to a Joint Tenancy?
Yes. This is referred to as ‘severance of joint tenancy,’ and it can be accomplished with the assistance of a conveyancer, who will notify the Land Registry.
Is it possible to get out of a Tenant-In-Common Mortgage?
Whether the exit takes the form of selling the entire property or the party wanting to withdraw selling their share to another owner or a third party, the other parties must agree if one party wishes to withdraw from the agreement.
What is the Distinction Between Tenants In Common and Joint Tenancy Mortgage?
Joint tenants have equal rights to the entire property, which means you both own it together. Each tenant has a ‘right of survivorship,’ which implies that if you die, complete ownership instantly passes to the other tenant(s). You cannot give your house ownership to someone else in your will.
Tenants in common means that each individual owns a share of the residence, and the shares may be uneven in value, for example, one person owns 30% and the other owns 70%. If one of you dies, the share does not immediately pass to the other owner; however, you can leave your share to someone else in your will.
It is important to note that, in addition to numerous ways of sharing ownership of your home, there are also other ways of owning property entirely, such as freehold and leasehold. It’s helpful to understand the distinction before committing to a location.
Tenants in Common Mortgage FAQ’s
What happens to mortgage when tenant in common dies?
When tenants in common are involved, each renter may have their own mortgage for their percentage of ownership, or the mortgage may be taken out in the names of all tenants in common. If the deceased person had his or her own mortgage, this is a debt that the personal representative must handle.
How do you prove tenants in common?
A declaration of trust is the most secure approach to memorialising these wishes. Speak with the solicitor who handled your acquisition to find out how the property is held and if a declaration of trust is required. If the property is held as tenants in common, the Land Registry title should be restricted.
Can a tenant in common sell their share?
Tenants in common have the right to leave their share to a beneficiary as part of their estate, and they have the right to sell, trade, or give their share to anybody they like.
