There’s a lot of legal jargon to get your head round when you’re buying your first home and some of it may leave you confused.
However, if you’re planning to buy a property with someone else, you need to understand what ‘joint tenants’ and ‘tenants in common’ mean – and what the differences are between them.
When you sign all the documents giving you ownership of your new home, you and your partner will need to state whether you will own it as joint tenants or tenants in common. That’s why it’s so important you know what they are.
Let’s find out:
If you and your partner, friend or whoever you’re buying the house with list yourselves as joint tenants, you will each have an equal right to the whole of the property.
Being a join tenant means that you cannot pass on your ‘share’ to someone else when you die – it would automatically go to your joint tenant.
Tenants in common
If you choose to be tenants in common, you will each own a separate share of your home. These shares might be equal – 50:50 – or different.
Being a tenant in common means that you can choose whom your share of the property passes to if you die. And if the other owner passes away, you will not necessarily automatically inherit their share, unless they have stipulated in their will that you should.
Which option should I choose?
There is no law that states which option you must choose when you buy a property – you will need to decide based on your own situation.
Choosing to be joint tenants
Generally-speaking, if you are married and buying a new home with your spouse, you will be listed as joint tenants. This makes sense as you will probably both be providing the deposit from joint savings, and it’s likely you’ll both be responsible for the mortgage.
This isn’t always the case though - perhaps if one of you works and the other is a stay-at-home parent, or if one of you provided the whole deposit - but as you’re married you would stand to inherit what your partner leaves behind anyway (unless stated otherwise in your will). So, being joint tenants makes sense in this situation.
If you were to split up with your partner, you would both be entitled to an equal share of the property as joint tenants. This might mean that one of you would need to remortgage to give your ex their share of the cash equity. If neither of you was able to do this, the only alternative might be to sell and split the profit between you. These are both serious options, and it’s important you consider them if you want to be named as joint tenants.
Choosing to be tenants in common
Naming yourselves as tenants in common makes sense if you’re not married because it can give you added protection. You may decide you would each like a 50 per cent share of the property – but it would still be your own share, separate from the other tenant’s share. This is different to being a joint tenant, where you would each own all of the property equally.
Tenants in common is a good option if one of you has paid more towards the deposit. If this is the case, you can ask that in return for this you are entitled to a larger share of your new home. If one of you will be paying more towards the mortgage, you can also ask that you get a larger portion of the ownership.
If one of you dies when you’re named as tenants in common, the share will pass on to the people listed in the will (if there is no will, the share will be passed on according to the current intestacy rules – find out more about these here). So, if you’ve married for a second time and you want your share of your home to go to your children from your first marriage when you die, rather than your spouse, being named tenants in common will allow you to do this.
Another advantage of being tenants in common – for older borrowers – is funding care costs. Many local authorities will fund care costs and then look to reclaim those costs from the value of your property. If you are joint tenants, because you each own 100% of the home the authority can take up to the full value of the property. However, if you are tenants in common, the local authority can only reclaim the value of that person’s share.
What if the situation changes?
Nothing is certain in life - you may find your situation changes and you want to change your tenancy status too. If you bought a house with your partner before you were married, for example, and are listed as tenants in common, you can change this to joint tenants. And if you’re joint tenants but you split up and decide you want to leave your share of your home to someone else, you can change your status to tenants in common.
There is no fee for either of these options, and you can find more information on each process here and here. You can also switch to one of these if you bought the home on your own as a sole tenant but now want to share ownership with someone else, although there may be a fee for this.
We hope this blog has filled in a few of the blanks about whether to be joint tenants or tenants in common. You can get more advice on what to do if you’re buying a house with someone you’re not married to here, including learning why you might want to write up a Deed of Trust.
Disclaimer: All information and links are correct at the time of publishing.