Where a single asset or property is owned by more than one person (or company) it will be owned by them either as joint tenants or as tenants in common.
Under a joint tenancy, each owner effectively owns the whole asset. In other words, each owner shares ownership equally. If one owner dies, the other owner acquires the deceased owner’s interest automatically.
Tenants in common
Where two or more people own an asset as tenants in common each owner holds their share of the asset outright. Under this ownership structure, there is no need for there to be ‘equality’, for example, A might own 60%; B would then own 40%. If a tenant in common dies, their interest in the property may be distributed in accordance with the directions in their will; that is, it does not pass automatically to the remaining tenant in common.
Consequences of joint tenancy and tenancy in common arrangements
On the death of one joint tenant, the asset automatically passes to the other or others, regardless of the terms of the will of the joint tenant who died. If a joint tenancy is severed (that is, converted to a tenancy in common) each owner can then direct how their share in the property is passed following their death by making provision in their will.
In terms of the liability for a mortgage and its repayments, it usually does not matter what tenancy (joint or in common) is in place, all owners are equally and fully liable for the whole amount. Consequently, when one of the owners wants to buy another property by herself, banks usually assesses her borrowing capacity on the basis of the whole existing debt, as she is liable for the full amount i.e. her borrowing capacity can be significantly less than it would be considering her actual repayments.
Some Banks, however, have recently launched new “Property Share” policies allowing people buying a property together to keep their loans entirely separate. Both parties act as cross guarantor for each other, but such a loan structure allows for each party to pay back their loan at their own pace and to take out different sized mortgages. The applicants must be able to afford their own loan portion and it is mandatory that they seek legal advice before entering any such arrangements.
EXAMPLE: One set of borrowers were buying for investment and their friends were first home buyers (without any grant or duty reduction). Each was only liable for their share of the debt which left both parties able to continue to borrow for future properties.