Equity Release is a popular way for people over the age off 55 to release cash tied up in their homes. It’s a big decision and, therefore, not one that should be taken lightly.
It’s 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 you will want to make before taking out an equity release plan.
In this article, we will discuss what you should consider if your property is co-owned.
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 don’t necessarily need to be equal.
They are co-owners of the property, and therefore, have an equal say in what happens with the land. 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 don’t need to be equal. So one person might end up holding more than 50% equity if another agrees to take on less responsibility or pay out their mortgage costs.
It doesn’t 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 Owners 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 pay 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 and taking 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.
You Can Will Your Share to Whomever You Want
If you’re 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.
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 dies. 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, here 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 what makes sense to you 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.
How to Find Out if You Co-Own Your Property as Tenants in Common
It’s important to know what kind of ownership you have on your home, which is why you need to know if it’s shared as tenants in common.
One way to find out for sure is by checking the title deeds and mortgage deeds 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, who will have records of any shared ownership of 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’s likely that you own your share outright and do not pay off mortgage debt with others.
What Happens to Your Equity Release Plan When One Owner Dies?
If your property is co-owned as tenants in common and one tenant dies, their share of equity will be distributed to the other owners. This could mean that you take over 100% equity share – leaving nothing for anyone else who owns an interest, including the other tenant.
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 might be more pressing – such as funeral arrangements, wills, pensions, etc.
It’s 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.
What Happens if One Owner Goes Bankrupt?
The person who owns a 100% equity share in the house could pass away or go bankrupt4– meaning 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 only 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 might 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 what length of time. 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.
What are the benefits of owning a property as tenants in common?
Tenants in common have more freedom when it comes to Equity Release and may not necessarily need to be concerned about co-ownership.
This is because they can choose how much of their share they want to put towards the mortgage debt for whatever length of time – instead of being obliged by a contract between all parties, which would mean they must take equal responsibility for payment.
When Can I Take Equity Release for a Property Owned as Tenants in Common?
One can take equity release for a property co-owned as tenants in common at any time, which could help with mortgage repayments.
How Do Tenants in Common Divide up Equity After Taking Equity Release?
Tenants in common can divide up equity after taking Equity Release however they want, so long as the other owners agree.
Who Takes Care of the Upkeep and Maintenance for a Property Owned as Tenants in Common?
The co-owners of a property owned as tenants in common will have to take care of the upkeep and maintenance themselves, so they can make decisions about how funds are spent.
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 will 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 might affect them if you want to sell your interest now while others live on the premises.
The rules governing this type of scenario vary from case to case, so you may want to consult with legal counsel before proceeding with any sale at all.