Buying property with a partner is undoubtedly an exciting milestone. But what happens if one partner has a larger deposit available than the other? And how is ownership split if they go their separate ways, or should one owner wish to sell the property and take their funds with them?
Partners can buy property with different-sized deposits, and neither party’s contribution is limited. However, lenders hold both parties severally liable for the repayments. Unmarried couples may consider buying as tenants in common and signing a cohabitation agreement to protect their interests.
Clearly, the most important factor is that the buyers are happy with one partner contributing more deposit than the other and that their interests are protected should they subsequently decide to sell the property and go their different ways. It makes sense to put measures in place to clarify the division of assets to avoid any unpleasantness or even legal action.
Read on for Goldmanread’s helpful guide about buying a property with unequal deposits and what happens when the property is sold. For personalised advice, please do not hesitate to get in touch with our experienced mortgage brokers.
Is it possible to have unequal shares of a joint mortgage?
Unequal shares of a joint mortgage can exist if the property is owned under a ‘tenants in common’ arrangement. In this case, each party owns a specific share of the property, which can be unequal.
The partners may wish to split the mortgage responsibility according to these ownership shares, allowing each person to be liable for a portion of the mortgage repayments that reflects their ownership percentage. This arrangement should be clearly outlined in a Deed of Trust to avoid any misunderstandings (see more below).
However, it is important to understand that lenders hold each borrower jointly and severally liable for the total mortgage debt. If one party defaults on the mortgage, the other party is still responsible for repaying the full amount owed.
It’s also important to acknowledge that this does not have to apply to the actual value of the property. Any equity left over after the mortgage is paid off can be split in a way that reflects each party’s contribution to the property.
What is a ‘tenants in common’ mortgage?
To split ownership in a way that reflects an unequal deposit, it is advisable to structure the mortgage as a tenants-in-common arrangement rather than as a standard joint mortgage. In a tenants-in-common mortgage, you can split the mortgage equally, i.e. 50/50, or on an unequal basis, for example, 70/30 or 60/40.
Joint tenancy can be organised so that when the property is sold, the level of deposit contribution is reflected in the equity split.
For example,
- Partner 1 contributes 15% deposit, and Partner 2 contributes 5% deposit.
- On the sale of the property, Partner 1 will receive 15% of any equity, and Partner 2 will receive 5% of the equity once all the mortgage is paid off.
- This assumes that they sell the property for at least the price they paid for it, with any extra coming from the growth in the property price, assuming there is any.
The alternative would be to structure the mortgage in the standard fashion of joint tenants whereby each applicant will receive back an equal share of the remaining equity, no matter the level of their deposit contribution.
What if we are an unmarried couple?
Unmarried couples are advised to consider their deposit contributions carefully when buying property together. If their deposit contributions are unequal, they should consider buying as tenants in common to reflect their separate contributions to the purchase of the property.
How do I protect my deposit when buying a house with a partner?
Along with organising the mortgage on a tenants-in-common basis to reflect differing deposit contributions, you can protect yourself by setting up a deed of trust.
Using a Deed of Trust
A deed of trust or declaration of trust is a legal agreement that aims to protect the assets of any partners contributing to a new property purchase.
Similar to a pre-nuptial agreement, it protects the assets of one or both parties in the event of a breakup or dispute.
It is important to consult a suitably qualified solicitor in order to explore fully the complexities of setting up a correctly drafted Deed of Trust.
Cohabitation Agreement
Cohabiting couples do not have the same level of legal protection as civil partnerships or married couples. That’s why many have their solicitor draw up a cohabitation agreement, which is a legal agreement that covers broader aspects of living together, including financial arrangements, responsibilities, and the division of assets upon separation.
Looking for mortgage advice? Get in touch
At Goldmanread, we have over 20 years of experience securing mortgages for couples, including first-time buyers, home movers, and those looking to remortgage. We help clients find and arrange competitive mortgages and provide general help on the property buying process.
Please get in touch to find out how we can help you secure your next mortgage from hundreds of different lenders.
Further reading:
Goldmanread is a mortgage broker and is not qualified to offer legal advice. For advice on drawing up a Deed of Trust or cohabitor’s agreement, you should consult with a suitably qualified solicitor.
