Should You, as a Joint Buyer of a Property, Ringfence Your Deposit?
People buying a property together risk losing their investment if they don’t seek legal advice first.
Cohabiting couples, friends or siblings purchasing property together have no protection on their initial investment when it comes to selling up and are not protected by law in the same way that married couples or civil partners are. It is also becoming more common that buyers may be doubling up to be able to afford to buy a home.
In such circumstances, buyers should opt to purchase as tenants in common (See also How Do You / Should You Hold Your Jointly Owned Property – As Joint Tenants or Tenants in Common?). In itself owning a property as tenants in common without any declared share will be subject to the presumption that the owners hold their shares equally, i.e. 50/50. However, shares need not be equal and the respective shares of the parties involved can be set out in a declaration of trust which clearly outlines what share of the property each person is entitled to.
A and B purchase a property at £100,000.
A mortgage is taken for £70,000 and the entire balance of £30,000 is paid by A.
A declaration of trust documents A’s initial capital investment of £30,000 and can state that such sum is returned to A on any future re-sale of the property after repayment of the mortgage and before any remaining net sale proceeds are divided between A and B.
A sale some time after purchase may well have brought about an increase in property value and decrease of mortgage debt but of course property values can fall, as well as rise and a mortgage lender will always retain priority for repayment of a mortgage in the event of a sale. Should a sale in these circumstances not clear £30,000 repayment to A, at least A will receive as much as could be achieved from the sale even if that means B takes nothing. A declaration of trust can be drawn up as part of the usual conveyancing process.
So, if you are investing a considerable amount more than your co-buyer in the property being purchased, protecting your money is a wise move. No-one can predict the future but if you need to sell the property for any reason and move on it is better for joint owners to have declared their shares in the property at the time of the purchase which ensures each walks away with their fair share later avoiding any messy legal dispute.
If circumstances change during the period of ownership, for example, one party makes a capital repayment against a mortgage, the declaration of trust can be revised at such time.
If we are assisting in your purchase and you feel a declaration of trust is required, please do not hesitate to advise your instructed conveyancer.