Buying property with someone else has benefits.
By combining your salaries, the bank will typically increase how much they lend.
This enables you to move into a better area and larger property. And it reduces the overall cost of buying a house.
In the UK, the two more common co-ownership models are joint tenancies and tenancies in common.
Read on to understand the difference between them, and their advantages and drawbacks.
Joint tenancies
In a home owned under a joint tenancy arrangement, all parties equally own the entire house.
In short, no co-owner has a specific or quantifiable share. Proceeds are split equally if the property is sold.
Under a joint tenancy, the property automatically transfers to the surviving party if one of the co-owners dies.
It cannot be passed on to an ‘heir’ in a Will. This is why this route is more common among couples who do not have children.
This could be ideal for a married couple who want the other person to inherit the house entirely if they pass away.
A joint tenancy is not necessarily always between two people – it can sometimes be more.
Tenancies in common
When a house is co-owned as a tenancy in common, each person has a quantifiable share in the property, which is not necessarily equal between all parties.
In other words, some co-owners could have a much larger share than others.
If one party in the agreement passes away, their share of the property does not necessarily get transferred to the surviving co-owner)/s).
It can pass on to someone else via a Will. So, this option is more common for people with children.
Turning tenancies in common into joint tenancies
Shares can be traded, and new tenants are added while all parties live during a tenancy in common.
For example, it is common for a couple living together to transition from a tenancy in common to a joint tenancy once they get married.
This is because they want the property to be automatically transferred to their partner if they pass away.
Advantages and Disadvantages of joint tenancy
Advantages
Avoids probate
A Joint Tenancy is widely regarded as the ‘simpler’ solution.
Since the property automatically transfers once you pass away, it saves the stress and complication of assigning shares to new people, paying for probate to be completed and more.
It saves you the hassle of having to create a Will. However, you should confirm with a legal expert whether this is advisable.
Shared responsibilities
Some partners prefer shared financial responsibility for a property, enabled via a Joint Tenancy.
Since both parties own the house equally, it allows them to hold each other accountable.
Also, it demonstrates that they are a true ‘team’.
Financial security for the survivor
Automatic transfer of ownership upon one joint tenant’s death ensures the surviving tenant has full legal security and control over the property.
Disadvantages
Heirs may not benefit
On the other hand, if you own a house under a Joint Tenancy with a partner, your children (if you have any) may not benefit from the house once you pass away.
This is because the house will be entirely owned by your surviving partner, who may choose/want to share proceeds or ownership with your children or other family members.
By contrast, a Tenancy in Common allows you to leave shares to your children in your Will, guaranteeing they benefit, too.
Challenges if relationships break down
A Joint Tenancy can also present challenges if your relationship breaks down with the person you’re living with, which includes divorce.
It is difficult to force a sale when you both own the house equally, so if you disagree with your co-owner, the matter may need to be taken to court.
Potential for unfair outcome
If one party has invested significantly more than the other in the property. In that case, this will not be reflected when the time arrives to sell.
(Selling a home with co-ownership can be difficult at the best of times.)
Advantages and disadvantages of tenancy in common
Advantages
Flexibility
A tenancy in common provides more room for flexibility. It allows for changing circumstances, such as integrating newborn children or new marriages into the family plans.
Temporary living arrangements
It can also be an advantageous situation if you are cohabiting with someone whom you are not in a relationship and who you don’t intend to live with for the rest of your life.
For example, two friends working together to get on the property ladder.
Fair ownership model
It also means that if one person contributes much more financially to the house (e.g., a significantly larger deposit), this is reflected in the ownership share.
Disadvantages
Potentially complicated
Generally, a Tenancy in Common is considered the more complicated option of the two.
With each party having specific shares, which can be continually traded and left to someone else in a Will, there are far more ‘moving parts’.
Requires deed of trust
The potential for complications is why many people in this position create a ‘Deed of Trust’, which sets out the financial interests of each person.
It outlines how a property is divided – for example, who owns what percentage of the house and how much money this equates to.
It can also show how much each co-owner contributes towards ongoing costs for the house, such as mortgage repayments or bills.
Requires will
A tenancy in common also typically requires you to draft a Will to to guarantee that your share of the property will be transferred to whoever you want.
This may also need to be changed or updated in certain circumstances. If it isn’t, it can create issues for loved ones left behind when one tenancy in common partner passes away.
