Are you considering equity release on a property that you own as tenants in common?

Equity release is a popular way for people over the age of 55 to release cash tied up in their homes.

It is a big decision and, therefore, not one that should be taken lightly.

It is essential to ask yourself many questions before making this decision, with an important one being whether or not your property is owned as tenants in common.

If it is, then there are additional considerations to make before taking out an equity release plan.

What are Tenants in Common?

Tenants in common¹ are people who jointly own a property.

They have an agreement on what they will do with the property, but their shares do not necessarily need to be equal.

They are co-owners of the property, and, therefore, have an equal say in what happens with the land, and are all considered in equity release eligibility when applying.

Still, unlike a joint tenancy where ownership is automatically shared between those who own it, each tenant has their individual shares.

When you buy a property as tenants in common, your shares do not need to be equal.

So, one person may end up holding more than 50% equity if another agrees to take on less responsibility or pay out their mortgage costs.

It does not mean that either party owns any more or any less of the house, though they hold different percentages of interest (equity) in it from day one.

Each owner's percentage share in the property can be specified.

If you want to change the ownership of shares in your property, you can discuss a buy-out² agreement.

This is where one owner agrees to buy out any mortgage debt and replace it with their funds, so that they take over 100% equity share in the property.

By doing so, you leave nothing for anyone else who owns an interest, including the other tenant.

Alternatively, one person can agree to hand over their share of the property without anyone paying out any funds in exchange.

They can take on an interest lower than 50%, but higher than 0% (such as 30%). Actioning this would mean they own a greater amount of equity in the house (30%) while someone else owns 70%, for example.*

*This is for indicative purposes only.

The Alternative to Co-Owning as Tenants in Common is to Co-Own the Property as Joint Owners

If you agree to own your property as joint tenants, this means that the other automatically becomes the sole owner if one person passes away.

It also means they have a greater share of equity and responsibility in terms of paying off any debts or managing them on behalf of all owners.

In addition, there are some things to consider before doing so, such as whether or not there is an agreement between both parties about how shares should be managed.

These options are either equal or unequal, depending on your situation at the time.

Each owner has a percentage share as well, which can change if they agree to give up their share or hand it over without any monetary exchange.

What Happens if One Owner Goes Bankrupt?

The person who owns a 100% equity share in the house could pass away or go bankrupt.⁴

This means there are no longer any assets left after paying off debts through bankruptcy proceedings.

The surviving co-owners would then be able to sell it without paying back money owed on mortgages or related expenses.

However, this means that someone will need to take responsibility for managing everything on behalf of the other co-owners, and they may not be able to sell their share without paying back the debts owed.

How do Tenants in Common Deal with Equity Release?

Tenants in common may have more freedom than those with co-ownership when it comes to equity release.

This is because they can choose how much of their share they want to put towards the mortgage and for how long.

For example, instead of being obliged by a contract between all parties, they must take equal responsibility for payments.

This could mean one tenant in common can sell their share after the other has already passed away, for instance - so they can enjoy equity release without having to worry about co-ownership.

How to Find Out if You Co-Own Your Property as Tenants in Common

It is important to know what kind of ownership you have on your home, which is why you need to know if it is shared as tenants in common.

One way to find out for sure is by checking the property title deed and mortgage deed for any mention of other owners.

This should indicate how shares are managed between all parties who own an interest in the property, including the other tenant.

You can also find out if you co-own your property as tenants in common by checking with HMRC³, which has records of any shared ownership on a person's tax return.

This being even if they are not named a joint owner of the property itself.

If there is no mention at all, then it is likely that you own your share outright and do not pay off mortgage debt with others.

How to Get Equity Release if One Owner has Already Passed Away

If one person has already passed away and they own 100% equity share in the property, this means that their estate will have to pay off any mortgage debts as well.

They can also opt for equity release if there are no other matters or personal finances which may be more pressing - such as funeral arrangements, wills, pensions, etc.

It is also important to keep in mind that when you take out an equity release scheme, the property will one day be sold and the estate of the deceased owner will need their share back.

This means that you should always sign up with another co-owner or joint tenant if there are any other people who own shares in the partnership.

You Can Will Your Share to Whoever You Want

If you are considering equity release and own your property as tenants in common, then there are some things to keep in mind.

If someone owns more than 50% of the shares (equity) in a property owned jointly by tenants in common, they can will their share in the preparation of death without anything else needing to be done.

Another consideration is the sharing agreement between yourself and any other owner - unless this has been changed beforehand with a buy-out agreement or written into wills.

Common Questions

In Conclusion

Equity release is an important consideration for any property owner.

In addition to considering the pros and cons of equity release, you must also look at what could happen to the property when you pass away or move into permanent care.

If you own a house as tenants in common (TIC) with other people, one thing that needs to be considered is how your share may affect them if you want to sell your interest now whilst others live on the premises.

The rules governing this type of scenario vary from case to case, so you may want to seek legal counsel before proceeding with any sale at all.

However, it is possible to obtain equity release on property that is owned as tenants in common.