Buying a property is in most cases the most expensive purchase a person will make and therefore it’s important to ensure that your interests in the property are looked after. There are different ways in which a property can be owned each with their own benefits. If you are buying a property with another person it is important to understand the different types of ownership so you can make an informed decision in how you should own the property and what to do with it in the future.
Sole ownership is when one person owns a property by themselves as a whole. That person is responsible for the property and any debts associated with it, for example a mortgage. If there are going to be 2 people named on the mortgage agreement this is not an appropriate type of ownership.
Upon death, a property owned in a sole name will require probate in order for it to be sold or transferred to a beneficiary. Having sole ownership means you can leave the property to whomever you choose without compromise.
Joint ownership is when 2 or more people own a property as a whole together and have equal rights to the whole property. You do not need to be married or in a civil partnership to own a property jointly, it is possible for up to 4 unrelated individuals to own a property in this way.
The benefit of Joint ownership is that it allows buyers to combine their funds and incomes. This means you can also take out a joint mortgage allowing you to possibly borrow more than if you were to buy a property on your own, enabling you to purchase a more expensive property.
However a mortgage provider will look at all of the potential owners incomings and out goings individually. If one of the borrowers has a bad credit score this can affect the mortgage as a whole and if one of the owners were to default on a mortgage payment the lender can look to the other owner/owners for the payment.
In the circumstance that one of the owners was to pass away the property would automatically pass to the other owners under the ‘rights of survivorship’. This means you cannot leave your ‘share’ of the property to a chosen beneficiary under the terms of your Will but does mean you will not need to apply for probate on the property.
Joint ownership is often used by couples, people who are married or in a civil partnership. Owning a property in this way means it will pass to the surviving partner under the rights of survivorship without the need for probate. It also protects the surviving partner from the rules of intestacy as they would automatically inherit the house as the surviving owner, this could prevent it from being sold if there are other beneficiaries (children of the deceased) that have a right to a share in the estate.
Tenants in common
Tenants in common is when 2 or more people own a specific share in a property. It can be used by anyone purchasing a property with another person. You do not need to have equal shares in a property, the shares can be divided in whatever way you decide.
One of the benefits of owning a property as tenants is common is that you can do what you want with your own share, meaning you can sell it separately from the other owners while they continue to own their share. It also means that you can leave your share of the property to whomever you want upon your death and that the other owners are not automatically entitled to it.
Tenants in common can also protect against future debts or care home fees as a person’s debts can only be claimed against their estate and not another person’s. An example of this would be if two people owned a property as joint owners and one person passes away leaving debts the creditor can claim they’re debts against the property disadvantaging the surviving owner. If the property were to be owned as tenants in common the creditor can only claim against the deceased’s share of the property meaning the surviving person’s interests are protected.
However owning a share of a property as an individual means that in order for your share to be sold or transferred to a beneficiary of your choosing, probate must be obtained. A persons share of a property owned as tenants in common does not pass under the ‘rules of survivorship’ it is counted as a sole asset meaning that it is subject to probate.
A common mistake made is home owners not understanding the difference in ownership between joint tenants and tenants in common and the right of survivorship rules. If a property is owned as tenants in common and one owner dies but probate is never applied for on their estate, when the second owner dies probate will need to be granted retrospectively in order to release the previously deceased’s owners share and sell the property or transfer it to a beneficiary.