A tenants in common mortgage allows two or more people to own a share in a property. It’s generally used by long-term partners but can also be a useful vehicle for parents who want to help their children onto the property ladder and protect their investment.
A tenants in common mortgage gives each party a share in a property. The shares don’t have to be equal; they could, for example, be based on the proportion of the deposit or mortgage payments made by each party.
Tenants in common arrangements must be drawn up in a legal agreement, separate to any mortgage documentation. Part of the legal process in either buying outright or with a mortgage will ask how you wish the ownership to be set up, with joint tenancy arrangements being the other option. The fact that you have a minority share in a property doesn’t mean that you can only use a part of it: you still have the right to access all of the property.
Reasons for a tenants in common mortgage
These agreements are worth considering in a variety of circumstances, including when:
- A group of friends combine funds to get onto the property ladder.
- Non married couples buy a property together but bring a different amount of investment into the purchase that they wish to protect.
- Parents want to help their children buy a property.
- Long-term couples with children from a previous marriage want to ensure that, if they die, their children receive a specified proportion of the proceeds from the sale of their residence, rather than those proceeds going to their partner by default.
- Older couples who wish to ensure that their share of a property is protected should one of the partners have to go into a care home and require funding for the care-home fees.
Tenants in common versus joint tenancy
The main differences between these two types of mortgage are as follows:
- In a joint tenancy, both parties own all of the property, whereas in a tenants in common mortgage the shares can be split 50/50 or on an unequal basis; for example 70/30 or 60/40.
- Under joint tenancy mortgages, if one person dies, their share of the property automatically passes to the survivor. Under tenants in common, each owner can bequeath their share of the property to whoever they wish.
- Joint tenancy mortgages require the agreement of both parties if the property is to be sold. By contrast, each party to a tenants in common mortgage is free to sell their share of the property.
Advantages and disadvantages of tenants in common mortgages
Pros of a tenants in common mortgage
- A tenants in common mortgage allows flexible ownership of shares, rather than you sharing equal ownership of the property.
- You can leave your share of the property to anyone you like: it doesn’t simply pass to the other owner(s) of the property when you die.
- If one of the owners dies, the other owner(s) should be able to sell the asset or a part of it without waiting for a probate court judgment.
- Tenants in common can be a useful device to protect a home from being used to pay for care home fees. Under joint tenancy, ownership of a property automatically passes to the survivor, and if they go into a care home the whole property could be used to pay the fees. Under tenants in common, the first person to die could bequeath their share to someone other than their partner, and that share cannot then be forcibly sold to pay the care home fees.
Cons of a tenants in common mortgage
- Tenants in common is a more complex arrangement than joint tenants. You will need to draft a Deed of Trust, also known as a Declaration of Trust, which will add to the cost of setting up this arrangement. Each party will also need a will to detail who their share will be left to if they die.
- Disputes can arise if a Deed of Trust is not drawn up at the time of purchase, specifying share ownership.
- A party to a tenants in common mortgage may sell their share to a new owner without the other parties’ approval. So, you may find yourself sharing ownership of a property with someone you don’t know.
- Having a financial arrangement with someone in the form of a tenants in common mortgage can have a far-reaching impact on your credit score. If the other member of your joint mortgage has bad credit it can harm your application for a joint mortgage, while missed or late payments during your mortgage term will show up on your credit score even if you weren’t responsible for the missed payment.
How do I apply for a tenants in common mortgage and how much I can borrow?
You can apply for a joint mortgage directly to lending institutions, via a mortgage broker or by using a comparison website. You then need to use a solicitor to draw up a Deed of Trust specifying share ownership as well as the tenants in common arrangement. You should instruct your solicitor to register the tenants in common agreement on the title deeds at the Land Registry.
How much you can borrow will depend on the factors that lenders take into account when agreeing loans and include your income and your credit profile.
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Can I change a tenants in common mortgage to joint tenancy?
Yes. This is known as ‘severance of joint tenancy’ and can be done with the help of a conveyancer, who will notify the Land Registry.
Can I get out of a tenants in common mortgage?
If one party wants to opt out of the agreement, the others are obliged to agree, whether the exit is achieved through the sale of the whole property or by the party who wants to leave selling their share to another owner or a third party.
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Buying a home is rarely easy, but with a shared ownership mortgage getting a home loan might be more affordable. You’ll only own a share of the home at the start, and will need to pay some rent at the same time, but you will have the chance to ‘staircase’ your way to full ownership if you wish.