Joint tenants vs tenants in common – how to choose your best option

Property

Few people can afford to buy a property by themselves, instead opting to join forces and finances with a partner, family or friends is increasingly common.

As well as deciding on your budget, where you would like to live and, eventually, the colour scheme for the walls, there’s a choice to be made on how you own the property with the other person, or people.

When you purchase a home with someone else, there are two ways of organising the ownership: either via joint ownership or as tenants in common.

Here, Telegraph Money explains how each option works, and who they are best suited to.

Joint ownership

Also known as joint tenancy, this is the most common way to own a home when you buy with a partner or spouse.

The co-owners own the property as a whole and neither party has a specific share, even if one pays the lion’s share of the deposit – or all of it.

When it comes to a mortgage, it will be a joint loan based on both people’s incomes with the usual affordability checks.

Both borrowers will be jointly liable for the mortgage debt, so if one person can’t pay their share of the payments, the other will be expected to make up the difference and ensure the full amount is repaid as agreed.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Joint tenants is typically the option best suited to couples who are married or in a civil partnership.

“If you sell, the parties are entitled to an equal share of the proceeds regardless of how much they contributed to the deposit at the outset or the mortgage. Should one of the parties die, the surviving co-owner automatically owns the whole of the property, irrespective of any wishes contained within a will.”

However, a joint ownership scenario doesn’t suit everyone, which is where tenants in common comes in.

Joint tenants in common

This option is best-suited to friends or family members buying a property together. In this case, each tenant owns a specific share of the property, which is legally documented. The proportions don’t have to be equal, so could be noted as 50:50 or 99:1 – or anything in between.

With this arrangement, you will instruct a solicitor to prepare a declaration of trust; a legal document setting out the exact percentage each party owns.

If you’re buying with a number of friends, perhaps if you live in an expensive city and need to pool more resources, then it’s useful to know that up to four people can be named as legal owners on a tenants in common agreement. Having more than four owners requires using a trust.

Some lenders will allow up to four people to take out a mortgage together, with each owner named on the property deeds.

This arrangement can work well while all parties want to remain living in the property. But if circumstances change for one – perhaps a job relocation or wanting to move in with a partner – things get messy. There are ways around it, but it’s not easy and can mean stumping up cash to take over their share or selling up.

This option may also be beneficial to couples who buy a property together later in life, perhaps where they already have children and want to ensure family wealth stays in the family.

That’s because unlike other forms of joint ownership, if one of the tenants-in-common dies, their share of the property doesn’t automatically transfer to the surviving owner. Instead, the share of the property passes to their estate and then the beneficiaries of their will.

Mr Harris said: “We often see people with children from previous relationships who choose the tenants in common option because it guarantees that their children will benefit should it be written into a will.”

Tenants in common might also suit couples looking to maintain their financial independence or safeguard individual investments, particularly where one holds significantly more wealth than the other.

The declaration of trust and agreed ownership is particularly reassuring where owners split up and relations are not amicable.

How joint tenants in common works for investment

Mr Harris highlighted that setting up a tenants in common agreement can also be useful for investors who pool their money to invest in buy-to-let properties.

He said: “This option is also preferred by property investors who wish the split and benefit from income and tax treatments.”

If you’re thinking about doing this, you might consider getting specialist tax advice to make sure it’s right for you and that the calculations are accurate on what tax will be due.

Some mortgage lenders might require the declaration of trust to be reported to them.

Mr Harris said: “Lenders are comfortable with this and it is possible to change from joint tenants to tenants in common or the other way if you need to due to separation or divorce.”

If you want a tenants in common arrangement from the outset then from a mortgage point of view, the terms are typically the same as when you buy a property as joint tenants. That is, both borrowers will be jointly liable for the mortgage debt – even if ownership is 99:1.

How to switch between tenancy types

It’s possible to change the ownership type in place for your property, but there are specific processes you’ll need to follow.

Change from joint ownership to tenants in common

This change is known as “severance of joint tenancy”, and can be done by applying for a “Form A restriction” – you can do this yourself or with the help of a solicitor or conveyancer.

If the other owner agrees to the change, you can download and fill in form SEV. You’ll need to send the form and supporting documents (an original or certified copy of the notice of severance) to HM Land Registry’s Citizen Centre.

You can still make this change without the other person agreeing to it; in this case you’d need to show that you have attempted to have the letter of severance signed by the other party, fill in form SEV and an extra form RX1, plus any supporting documents.

Change from tenants in common to joint ownership

This change requires permission from all other joint owners. To make this change, you’ll need a conveyancer to help you fill in a new or updated trust deed. If a restriction has been registered, you’ll need to download and fill in the form to cancel this, and then send this and any supporting documents to the HM Land Registry Citizen Centre.

You’ll need to send either a statutory declaration or “statement of truth”, certified proof that all owners have agreed to the change, such as a new or updated trust deed.

Joint borrower sole proprietor

There are other scenarios where you might want to pool resources to buy a home – but name only one owner.

This is typically the case for grown up children are struggling to buy alone and need the help of parents purely on the borrowing front.

Joint borrower sole proprietor (JBSP) mortgages allow up to four people to be named on the mortgage, with only one being the property’s sole proprietor and named on the deeds.