A homeowner has warned unmarried couples not to get ‘sucked into the dream’ of buying a property together without first signing a ‘mortgage prenup’.
Tom Lord, 33, a PR Account Director from Leeds, admits he was ‘naive’ to ‘jump into’ buying a property with his first serious girlfriend soon after she graduated from university in 2017.
But even he was unprepared for what would follow. The pair broke up just as the pandemic hit the UK and they remained living together in the house they co-owned during lockdown.
In 2014 Tom was working part-time in Argos while living at home with his parents in Leeds after graduating from Newcastle university, where he met his girlfriend.
Tom was two years above his girlfriend at university but had been travelling back and forth to spend time with her on weekends and holidays.
Soon after she graduated, the pair decided to take the plunge and buy a property together in his home city. Both convinced their love would last, they put no financial safeguards in place should the worst happen.
After three months of viewing properties, the couple set their hearts on a two-bed home in Garforth an area of Leeds. The £142,000 house meant they were sharing a £531 a month mortgage.
The move made financial sense to their pair who felt it was smarter to be paying towards owning a property rather than renting and paying all that money to a landlord each month.
Despite their six-year relationship, Tom admits the couple had never ‘tested’ what living together other would be like. ‘Looking back, it was probably too soon’, he says.
Tom said: ‘As soon as my girlfriend finished uni, I thought we could just jump straight into buying a house’.
And, everything went smoothly at first. Tom and his partner settled into their new home without any issues. For a few years, life was good.
However, things started to change when Tom joined a PR firm. His new job was very social and led him to spending more time out and about with clients or at work events.
Tom said: ‘I was out three or four times a week. This put strain on our relationship and we started having small arguments.
‘She didn’t drink so she didn’t understand how you can expect to go for ‘one or two’ and end up staying out all night.
‘These small arguments grew to a point where I was doing one thing and she just wanted to live a very different life.
‘It wasn’t that we didn’t care about each other, we just realised we didn’t want the same thing, so we decided to break up’.
Tom re-negotiated his salary and adjusted his monthly mortgage payments to afford the house on his own.
But when the pandemic hit, everything changed. His company cut salaries to 80%, putting him below the threshold required to cover the mortgage alone.
Concerned about selling at that time and despite the tension, Tom and his partner decided to stay in the house during lockdown.
Tom said: ‘There was a respectful understanding and we both had their own space’.
When the lockdown ended, Tom’s financial situation improved, putting him in a position to buy out his ex from the house.
They went through financial advisors, worked out what was fair, and agreed on a settlement. Tom continued living in the home they had once shared.
The financial separation was arranged amicably. There were penalties for remortgaging and early buy-outs but it was clear that they both wanted to move forward with their lives.
Tom said: ‘She’s intelligent, we sat down quite rationally, reflected on what we had both put in at the start.
‘She was respectful and acknowledged that I had bought more furniture and put in more deposit. It wasn’t easy but we met in the middle. At the end of the day, we both needed to move on’.
Tom added: ‘Looking back, I wish I’d been more cautious. You don’t always think about the ‘what-ifs’ when you’re young. You get caught up in the excitement of buying a house, and you don’t think about things falling apart.
Reflecting on the financial aspects of the breakup, Tom wishes he’d had the foresight to sign a Declaration of Trust or a ‘mortgage prenup’, which would have made the split far simpler.
A Declaration of Trust is a legally-binding document that sets out how much each person has contributed to the costs of the property and how its value will be split upon sale.
Tom said: ‘It was a steep learning curve but now I’m more aware of how important it is to think these things through’
‘If I could offer any advice to young couples it would be ‘don’t get sucked into the dream’, think before you sign any contracts, and consider the possibility of it ending.’
While Tom and his ex-girlfriend did not have their fairytale ending, they both came away from the relationship with their eyes opened to the financial realities of buying a house as a couple.
Tom added: ‘I’ve got a lot more equity in the house now than if we’d sold it at the time. I’d probably have had to go and rent, and I’d have been in a much worse position today.
‘So me staying in the house has worked out. I see her sporadically and she’s moved on too and is enjoying life.’
—————————————————————————————-
What happens to the house if you break up with your partner? Property expert’s five tips for co-owning couples
Although every couple may wish for it… not every relationship leads to a happy ever after.
For thousands of couples across the UK, the reality of separation means facing tough decisions about their shared property and mortgage commitments.
In fact, almost nine in ten Brits (89%) admitted that they hadn’t discussed with their partner who was entitled to what in the event of their relationship collapsing. [1]
This is perhaps not surprising given how hard it often is for first-time buyers to get that first foot on the property ladder.
Couples will talk a great deal about how to secure their first set of keys and yet it is likely that little discussion is had about they would do if things didn’t work out in future.
Jo Pocklington, Managing Director of Purplebricks Mortgages says: “In my 23 years’ experience, I’ve seen the biggest property mistakes often happen when emotions are running high after a break-up.”
She has shared her top five tips to help home-owning couples facing a break-up.
1. Assess your legal standing
I’m finding an increasing number of my clients go into joint property buying with a Cohabitation Agreement drawn up between them.
This joint agreement clarifies how the partnership will run whilst you live together, how much you both contribute financially to any mortgage, any maintenance issues, household expenses etc.Within this there should also be a section on what will happen to the property and your individual shares in it, should you decide to separate and potentially sell.
Your Cohabitation Agreement should help establish certainty and reduce the risk of future disputes.
2. Review your options by speaking to a trusted Broker
No prior agreement in place? A trusted mortgage broker should be your first port of call because a qualified and trusted broker can help map out your financial options and help prevent costly mistakes during this difficult time.
They’ll help to assess whether you can afford to buy out your ex-partner, remortgage in your sole name, or need to sell the property entirely.
Your broker can also advise on crucial timing aspects, such as when to initiate a remortgage application or whether you should remain on the existing mortgage until the property is sold.
It’s advisable, if possible, for you and your ex-partner to have a clear idea about what you both want and if there is any possibility of achieving this smoothly.
This can be an emotionally challenging time – it is therefore crucial to remember you are not alone and that professional advice is available to help you assess the best options, and navigate on your behalf whilst taking away the emotional difficulties.
3. Sell the property
Selling up and making a clean break can be the most straightforward solution.
Despite an attachment to the shared home, many ex-couples choose this solution because it can give them the money to find somewhere else to live while potentially avoiding any unpleasant monetary discussions.
However, timing can again play a crucial role when pursuing this option. Jo advises that couples should get an up-to-date valuation and calculate their likely equity split after settling the existing mortgage and covering selling costs.
Often, it may be a good idea to consider if putting some money in to help towards renovations may be financially beneficial for both parties, this may be advised when the home gets a valuation and it can mean both homeowners have the opportunity to put more money in to get more out.
It is also worth noting that couples should go into the sale with a realistic expectation on what they will get back.
House prices may have gone up, meaning they will likely get more money than what they paid, but values could just as easily have gone down, meaning both parties receive less than they put in.
It is worth couples considering whether to sell first and rent temporarily while they both find their ideal next home. This can reduce the pressure of trying to coordinate simultaneous purchases and gives you time to make clear-headed decisions about your next move.
4. If the mortgage is joint, continue making the payments and come to a legal agreement
If an immediate sale or buyout isn’t feasible, maintaining mortgage payments is critical to protect both parties’ credit scores and future borrowing capacity.
One of the biggest mistakes separating couples make is falling behind on their mortgage payments in the aftermath of a breakup.
Despite whatever may have happened between the couple, it’s key to remember that until the property is formally transferred or sold, both people remain legally responsible for the mortgage.
It can feel like the best solution is to go your separate ways and find the quickest solution, especially if the relationship ended on bad terms, but there is a benefit to taking your time to assess which options work better for the long term and which solution will give you both the best chance at moving on and finding a place of your own.
It is also entirely possible for one person to take over the mortgage payments after the separation, this happens frequently when one partner has a significantly higher income than the other to make this viable.
If your ex-partner volunteers to pay the monthly mortgage payments as a solution, you should still be regularly checking your mortgage account to verify that the payment has been made, ultimately it does not affect the lender who pays the mortgage, but it does need to be paid regardless of who is doing it.
5. One partner buys the other partner out
Finally, it might not always be a preferred option for both sides to give up the property.
Although many opt for the ‘cut and run’ solution, this can leave both parties’ with an uncertain future.
But, if it’s financially possible, one option could be for one person to buy out their ex’s share of the property. This is particularly appealing to those who have emotional ties to the property or if children are involved.
If one person wants to remortgage to buy the other out in full, a mortgage broker can advise whether this is a viable possibility, and help find the best mortgage deal for the situation.
But this process typically involves remortgaging to release equity to pay off your ex-partner’s share, which needs to be based on a current market valuation. [2]
A good way to ensure this process goes as smoothly as possible is to arrange for a property valuation, this will reveal to you both how much money you are owed from your portion of the equity.
However, you should also keep in mind that the process of remortgaging to buy someone out can offer some unwanted complications. [3]
For example, there may not be enough equity in the property to remortgage at a higher amount or your ex-partner may simply not be able to pass the affordability calculation on their own.
Although it may be the nicer solution because it gives one side the money to start again while also allowing the other to keep some normality and stability, there are also some additional costs you should consider like stamp duty, legal fees, and any early repayment charges on your existing mortgage when calculating the total cost of a buyout.
Managing Director of Purplebricks Mortgages, Jo Pocklington adds: “In my 23 years of experience, I’ve seen that the biggest property mistakes often happen when emotions are running high after a break-up.
“Taking a step back and speaking to a trusted mortgage broker should always be your first move – they can present options you might not even know existed even when all things might look lost.
“While keeping up mortgage payments on a property you’re no longer living in might feel painful, defaulting on these will inevitably damage both parties’ credit scores for years to come and limit both of your options moving forward.
“I always tell clients: protect your financial future first, deal with the emotions second.”