How to make your financial situation watertight when buying with a partner

How to make your financial situation watertight when buying with a partner

Becoming a home-owner with a partner is an exciting relationship milestone.

It’s also a huge financial commitment.

However, in the current housing climate, buying a property with someone else is the only way lots of people can get on the ladder.

With it being such a big al decision, it’s a good idea to get everything in order first – and cover your back in case things go wrong.

After all, break ups can be hard enough – but throw money into the equation and it gets even messier.

James Andrews, senior personal finance editor at money.co.uk tells, Metro.co.uk: ‘With the average house in England setting buyers back £268,000, for many the only feasible way to step onto the property ladder is to do so with their significant other.

‘Many might see purchasing a home with their partner as the natural “next step” in a relationship, but it’s important for couples to understand the financial implications of taking out a mortgage together and how previous financial decisions may affect this.’

Experts have outlined some ways individuals can be financially watertight when getting a house with a partner. This is what they had to say…

Check credit files beforehand

Before committing to a joint mortgage with a partner, it’s important to understand their financial situation and if their history could negatively affect your chances of getting one.

A good place to start is to check both you and your partner’s credit files – before you become financially associated. 

Gerard Boon, mortgage broker at Boon Brokers, says: ‘If the applicants have any financial association to each other, the credit profile of one applicant can influence that of the other’s. It’s also important to regularly review your credit file to check for any adverse credit such as: late payments, defaults or county court judgements.’

Taking out a product, such as a mortgage, with another person means that your credit reports will become linked. 

This means their ratings will affect yours going forward – even when it’s just you applying for something.

James says: ‘Before taking out a mortgage it makes sense to check both reports and make sure there are no mistakes on them, and take any simple steps you can to boost your creditworthiness – for example, registering to vote at your current address.’

Understand your mortgage options 

James adds that joint mortgages are the most common solution for partners, and are also available to married couples, unmarried couples, civil partners and even friends or relatives. 

He adds: ‘Legally, everyone named on the mortgage is responsible for making payments, even if you have a joint mortgage where one person is paying.

‘According to the ONS, cohabiting unmarried couples are the fastest growing family type in the UK, with a larger number of couples deciding to purchase a home prior to getting married.

‘Most unmarried couples will opt to be joint tenants, where both parties have equal ownership of the property. This means that if one person were to die, the other tenant would automatically inherit the property.’

However, James adds that if you and your partner earn different amounts and would like to contribute different amounts to the mortgage – or would like the difference in contributions to be financially protected should your relationship break down – then you can opt to become ‘tenants in common.’

He says: ‘This will allow you to split the shares in the home in whichever way you decide, sell your share in the property separately, and leave your share of the property to someone else in your will.’

Discuss salary discrepancies and financial responsibilities 

Money talk can be awkward, but it’s vital to be open and honest with a partner about financial responsibilities.

It’s also a good idea to set up a joint account that both parties can pay into – in order to make things fair.

However, if one partner earns significantly less than their other half, it can be uncomfortable to split everything 50/50.

James says: ‘A compromise of paying a percentage of bills based on individual incomes could be a fairer way to divide outgoings.’

Set up a backup fund

If you’re buying a house with someone, it’s highly unlikely you’re thinking of breaking up with them. 

But these things do happen – and having a reserve of personal savings can be a good thing to fall back on.

James says: ‘In addition to safeguarding yourself if your relationship were to break down, keeping your own, separate bank accounts open will allow you to continue to still manage your own personal outgoings such as mobile phone bills or non-essential spending.’

Plan for the end – even if it doesn’t happen

Not every relationship lasts – and things get complicated when there’s a massive financial commitment thrown into the mix.

James suggests sitting down with a lawyer to draw up a simple document ahead of the purchase – to outline what will happen if one of you decides to sell up. 

He adds: ‘These don’t need to be incredibly detailed, but needs to be correctly done – something simply stating that either of you can sell with or without the other person’s permission, for example.

‘Of course, that’s only one of the ways the relationship can end, which means it’s also important to get a life or critical illness insurance policy in place that will cover the mortgage if one of you is no longer able to work.

‘Having a suitable policy in place means the other won’t be forced to sell up at a time they will no doubt have a lot of other things going on to worry about.’

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