What are the real risks for your equity stake in a home when things go wrong?
Pragmatism and due diligence may not chime with the romance associated with setting up home with a loved one, but it pays to have heads ruling hearts when it comes to the equity held in a property.
For couples coming together when one or both partners are already on the housing ladder, it can certainly stave off any future animosity or headaches by providing financial certainties – and not necessarily just for those planning on living with each other.
Such are the costs involved in purchasing a property that the bank of mum and dad or a benevolent friend or relative are usually called upon to assist with a deposit, stamp duty or to cover a percentage of the mortgage.
In such cases it is increasingly common practice for people to pool their resources and buy somewhere as joint owners. However, circumstances inevitably change and whether as a consequence of the first throes of love, a break-up or a desire for domestic independence, there may come a time when one owner may wish to buy out the others or add a new name to the title deeds.
To do so requires a transfer of equity, which is distinct from a sale as at least one of the original owners of the property will remain the same and – in most cases – will involve remortgaging with an existing lender or transferring the mortgage to a new provider.
In instances where the transfer adds, rather than removes, a co-owner, the parties can also consider whether they wish to put a declaration of trust in place to set out the percentage of a property held by each and confirm who will be responsible for things like mortgage payments and the cost of repairs.
Nobody wants to plan for a possible parting of ways, but such a prudent step is intended to mitigate contention rather than be a romance killer.
“Some first-time buyers and newlyweds-to-be can struggle with the concept of a declaration of trust and we understand it is not necessarily an easy subject to discuss when you are young and in love,” explains Dean Carruthers, head of operations at legal property specialist PLS Solicitors. “However, those who have experienced the pain of the break-up of a serious relationship are unlikely to have a problem agreeing safeguards against separation with a new partner.
“There are myriad reasons why people consider a transfer of equity or declaration of trust, but although common, they are not as straightforward or quick to put in place as some imagine.
“They are legal processes, can have tax implications and require a lender’s consent and the usual Land Registry checks that come with a remortgage. Fortunately, they are also things the team at PLS are familiar with and extremely proficient at.
“We are renowned for the speed of our conveyancing services and no matter how prickly or difficult any discussions between a property’s existing or prospective owners, our customer portal and digital processes are geared towards making the legalities easy to navigate.”