Pete Mugleston, Managing Director and mortgage expert at Online Mortgage Advisor, explores the advantages and potential downsides for anyone thinking about taking the next step in their relationship.
Deciding whether to add your partner to your existing or future mortgage is a huge decision that involves numerous legal, financial and personal implications.
Benefits of adding your partner to your mortgage
One of the primary benefits of including your partner on the mortgage is shared financial responsibility. When both partners are legally responsible for repaying the loan, the financial burden is divided. This can ease some of the pressure on both of you, making it easier to manage repayments together.
Adding your partner to the mortgage can also increase your borrowing capacity. Lenders typically assess the combined income of both applicants, which often results in a higher borrowing limit. This can be particularly beneficial if you're looking to purchase a more expensive property than you could afford on a single income. The additional financial strength can also provide more favourable loan terms, such as lower interest rates.
Drawbacks of adding your partner to your mortgage
One major drawback is the concept of joint liability. Both parties are jointly and severally liable for the mortgage debt, meaning if one person defaults on the payments, the other is fully responsible for the entire debt. This can create significant financial strain and potentially damage your credit rating. It's crucial to ensure that both partners are financially stable and committed to maintaining the mortgage payments.
If the relationship were to end, disentangling joint financial commitments can be complicated and potentially harmful. Selling the property, buying out the other party, or refinancing the mortgage to remove a name can be a complex and costly process.
Legal disputes may arise, particularly if both parties have contributed differently to the mortgage or property upkeep. Therefore, it’s wise to have legal agreements in place that outline what will happen in the event of a separation.
Once you have joint financial products, your partner’s financial behaviour will directly impact your credit score. If one partner has a poor credit history or incurs significant debt, it can negatively affect the other’s credit rating. This unification means that both partners need to maintain good financial habits to protect each other's credit standing.
Adding a partner to your mortgage might also trigger Stamp Duty Land Tax (SDLT) if the property is transferred as a gift or sold between partners, especially if there is an outstanding mortgage balance that the partner is assuming responsibility for. The SDLT can be a significant additional cost that needs to be factored into the decision. It's important to consult with a tax advisor to understand the potential liabilities.
Important considerations before making your decision
Before finalising your decision, it’s crucial to seek legal advice. A solicitor can help draft a cohabitation agreement or a deed of trust, which outlines each party’s rights and responsibilities regarding the property and mortgage. These legal documents can provide protection and clarity in case of disputes or relationship breakdowns.
Conducting a thorough financial assessment is essential. Consider your current income, future financial stability and credit history. Assess if you both can comfortably meet the mortgage repayments, even if either of your financial situations were to change. This assessment should also include a review of any existing debts and financial obligations.
Reflecting on the stage and stability of your relationship is equally important. Joint ownership ties you together legally and financially in significant ways. Ensure you're both committed to the long-term financial and personal partnership required for joint mortgage ownership. Open and honest communication about financial goals and expectations is key to making an informed decision.
Deciding to add your partner to your mortgage is a complex decision that requires careful consideration of both the advantages and potential pitfalls. By seeking legal advice, conducting a thorough financial assessment and reflecting on the stability of your relationship, you can make a more informed and confident decision.
