No quarrels over a joint purchase
If you buy a flat with a friend, how can you ensure your investment is protected? Our expert advises
Q
My daughter and her friend have decided to buy a flat together. She is putting £50,000 towards the deposit with our help, and her friend £10,000. They will then split the mortgage costs and all the bills 50:50. What happens when they come to sell; how can she protect the increased amount of money she initially invested?
A
How exciting for your daughter. When people buy a house together, the default situation is they buy as joint tenants. These means each of them owns 100 per cent of the property, so on death the entire property belongs to the surviving owner and in terms of selling, ownership is equal. This works well for couples or those putting in equal amounts initially, but is not great in your daughter’s situation.
However there is a simple solution — she and her friend need to buy the property as tenantsin-common. This allows them to stipulate what percentage of the property each owns. On death it can be left to whomever they wish and when sold, the proceeds are split in accordance with the arrangements agreed at outset.
The financial details agreed by the tenants-in-common are recorded in a legally binding Declaration of Trust (also called a Deed of Trust). This sets out the percentage ownership of the property and any other financial arrangements. For example your daughter and her friend may decide they will each receive their initial deposit back and then split any profit above this equally. Alternatively any uplift could be shared out according to the percentage ownership. It can also set down the process for the sale of the property, for instance giving the other tenant first refusal to purchase. The finer details such as who pays which bills are not typically included, as these may change over time.
Remember though, their mortgage company will treat them as jointly liable for all repayments regardless of the percentage of ownership.
It is always advisable to get the Declaration written when the house is bought, as it can stop disagreements when the property is sold. If circumstances change, ownership can be changed into joint tenants very easily, allowing both parties full ownership.
You do not say whether you have gifted the money to your daughter or given it as a loan, but Natalie Bradley, partner at solicitor Stephensons says: “Mortgage companies are not happy with a third party such as a parent having a financial interest in a property, so we do not advise they are added in the Declaration. If they want their money back they should make a separate agreement with their daughter.”
Solicitors typically charge around £350-£1,000 to draw up a Declaration, although your daughter could download a template and create one herself. It will need to be registered with the Land Registry.
It is also a good time for your daughter and her friend to make wills, setting out who they want to leave their share of the property, and any other possessions to should they die.
Rosanna Spero has been writing about money, property and small businesses for more than 30 years. She has worked for a range of magazines and newspapers, with much of her working life on the Money Mail section of the Daily Mail. She has also written a number of books on the subject. Email her with your questions at