MANY PEOPLE are now choosing to buy with a friend, business contact or family member. That is the case especially with first-time buyers, who are finding that they cannot afford to purchase in the present market. Joint ownership certainly seems less risky than stretching your own finances, which can end in disaster when interest rates rise or your income drops. Those who choose to share a mortgage, however, should be aware of the potential pitfalls and the ways to avoid falling foul of the unexpected.

First, you may be overexcited about buying your first property and this may cause you to bury your head in the sand and avoid thinking about the possibility that you and your co-owner may go your separate ways in the future. It is essential that you consider future possibilities, good and bad. Plans change: one of you may lose your job, or become ill, and be unable to afford to pay his or her share.

Second, each borrower is responsible for the whole mortgage, not just their share. If one of the buyers leaves or refuses to pay, or simply cannot afford, their contribution to the mortgage, that is your problem and not the lender’s. You will be responsible for paying the whole loan, which is likely to be a liability that you cannot alone afford. If you do not meet your mortgage payments, your lender can ultimately repossess your property, even if your mortgage is not substantially in arrears. Especially with 100 per cent mortgages, there may well be a shortfall between the amount borrowed and the sale proceeds, and the lender is entitled to pursue you individually for the entire debt.

Third, be clear about how you wish to divide your share in the property and your respective contributions to the mortgage. This is particularly important where one of you is paying more than the other, either through the deposit or the amount paid towards the mortgage. The legal terms for the two different types of ownership ,are “joint tenants” and “tenants in common”. For joint tenants, should one of you die, that person’s share passes automatically to the other buyer or buyers. With tenants in common, the buyers are deemed to own the property equally, unless there is a trust deed to the contrary, and any sale proceeds will be split equally.

In addition, some buyers, such as people who have an irregular income, have problems in obtaining a mortgage and so they purchase a property with someone who can obtain a mortgage. We have come across many cases where a buyer contributes to the deposit on the property or the mortgage but is not officially named on the mortgage and property deeds. As they are not formally named on the mortgage, they are also usually not named on the property deeds at the Land Registry. No matter how much you trust your co-borrower, such an arrangement could come back to haunt you, should your relationship with him or her, whether a friend, partner, or family member, break down. You are unlikely to be able to assert your entitlement to a share of the proceeds. In the absence of any signed legal agreements, you may well end up becoming embroiled in expensive and very stressful litigation.

It is advisable to arrange to have a legal document drawn up by a solicitor, to avoid many of the difficulties I have outlined. Such a document can cover any issue, but the obvious ones to address are an agreement on who owns the property and the proportion of your ownership in that property, who pays the mortgage, the building insurance, utility bills, furniture, and even how the property should be used. A deed can be drawn up dictating what happens if the value of the property decreases, and setting out your respective entitlement to shares in the sale proceeds. Such agreements are essential in the ever-changing property market.

Jodi Newton is a solicitor in the professional negligence department of Bolt Burdon Kemp.

jodinewton@boltburdonkemp.co.uk 020-7288 4700, www.boltburdonkemp.co.uk

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