What's a cohabitation agreement?

A cohabitation agreement is designed for unmarried couples or friends who are buying together. It’s there to protect cohabiters, because UK law doesn’t recognise rights for cohabiting couples or friends in the same way it does married couples or those in civil partnerships. A cohabitation agreement is legally binding in the UK. If you have one in place, it will be recognised by a court of law if a separation takes place and you need to either sell the property or one of you decides to buy the other one out. It sets out who owns what, what your financial responsibilities will be towards each other while you’re living together - and if you separate - and how jointly owned savings or property will be divided if you split up. 'A cohabitation agreement provides absolute clarity and certainty about who is going to own and pay what, and when,' says Jennifer Williamson, partner at law firm Blake Morgan. 'The legal fees for putting a suitable agreement in place may seem like a reason not to do this, but it’s almost always significantly cheaper to do it than to instruct solicitors to resolve any difficulties if things go wrong.' A cohabitation agreement covers: who owns what stake in the property how the deposit was paid and how it should be returned if the home is sold how the mortgage will be paid how the household bills will be divided who owns which assets, such as cars, furniture, jewellery etc who’s responsible for any payment of debts who might inherit each share of the property if one of you were to pass away A cohabitation agreement should always be drawn up by a qualified solicitor.

What’s the difference between a cohabitation agreement and a declaration of trust?

If you’re buying a home with friends, you’re likely to have decided to buy the property as tenants in common. When buying as tenants in common, you decide which stake in the property each of you owns. It could be a 60/40 split, 70/30 or whichever you decide. With a joint tenancy, property ownership is split equally, 50/50. A declaration of trust is a legally binding document. It sets out which stakes of the property you each own as a percentage and how the proceeds of a sale will be divided if the home is later sold. It takes into account any deposit paid, how the mortgage is paid and how any increase in value with the property will be apportioned if it’s sold. Cohabitation agreements are more comprehensive than declarations of trust, because they not only dictate what happens to the property if the relationship breaks down, they also cover the day-to-day matters when the relationship is working well, such as the responsibility for bills, repairs or home improvements.

What is a joint tenancy?

With a joint tenancy, both parties jointly own the whole property. With tenants in common, each party owns a specified share of the property. With a joint tenancy, you split the property and any proceeds you earn from it 50:50 when you come to sell. Or, if one of you wishes to remain in the property, they’ll need to buy out the other one’s 50% share. If one of you dies, their share will automatically transfer to the surviving owner. Joint tenancy is great if you’re both putting in the same amount of deposit and splitting the mortgage and bills equally. But if one of you feels they’ve contributed more than the other one, it can lead to disputes in court if you separate.

What are tenants in common?

With tenants in common, a cohabiting couple or friends can enlist a solicitor’s help to agree how much they each own of the property. For example, if one of you is putting in a lot more money for the deposit and mortgage costs, you may decide to split the portions as 75% and 25%. 'Tenants in common means that the property is split appropriately between the two owners,' says Adrian Anderson from property finance specialists Anderson Harris. 'If one partner provides the majority of deposit, but the other has a larger income and puts more into maintenance costs, a solicitor can help you decide a fair split.' The agreement can be changed at a later date if one of you starts contributing more and you wish the stakes to reflect that, say 60% and 40%. With tenants in common, each person can leave their share to their chosen beneficiaries in their will. If you do go down the tenants in common route, it’s a good idea to have a cohabitation agreement or declaration of trust drawn up. In the event of a split, both agreements will explain how the sale proceeds of the property will be divided between the parties after the mortgage and legal fees are paid off.

The awkward questions you need to ask before buying together

It’s not great romantic chat or hilarious bants to have the awkward conversation about bills, deposits and housework before moving in together.

But it’s so, so important to get it right up front before you commit.

So, get ready to grab a latte, park up together and have the chat.

Because buying a home is likely to be the most expensive thing you’ll ever do. And increasingly buyers are choosing the cohabiting route to do so.

In fact, cohabiters are the fastest growing household type today, according to the Office for National Statistics.

The number of mortgage applications for cohabiting couples rose by 60% during lockdown as buyers, stuck between the choice of living miles apart or living together in one place, took the plunge.

And it’s not a decision that’s taken lightly.

In our latest survey, 62% of cohabiters said they believe buying a place together is a bigger commitment than having kids.

Yet despite that, most are leaving themselves completely exposed when purchasing a property with a partner or friend.

Which is fine if everything’s going along tickety-boo. But what if after a few years, or even months, it’s just not working out?

What if the financial arrangements are no longer seen as fair?

What if they never lift a finger when it comes to the housework?

What if you could live apart, but you just can’t live together?

And if it comes to the crunch, how can you make sure the proceeds are divided fairly if the home needs to be sold?

Facing potential problems first will save a shedload of stress and money worries later.

So, first things first:

How are both of your finances looking?

‘Money is always an awkward conversation at the best of times,’ says behavioural psychologist Jo Hemmings.

‘And while it’s never romantic, it’s also one of the most argued about topics between couples, because they don’t have a clear plan.

‘You need to be able to separate your feelings in your relationship from a sensible financial plan.

‘Schedule in a quiet time to have a transparent look at your joint finances before you move in.

‘Who will pay for what? Will a disparity in your earnings/savings make a difference or are you happy to split everything 50/50?

‘And the hardest of all – but it’s really important to think about this during this conversation – what happens financially and to your stake in the property if you split up?

‘You may not know at this stage – or indeed, like every couple, anticipate it might happen – but it is worth discussing a contingency plan, such as whether you would sell the property if you were to split up or one partner might buy the other out.

‘Also, you might want to buy a more expensive or bigger place and consider having a lodger for a while to cover the extra costs.

‘All these possibilities need an emotionally detached conversation.’

With that in mind...

These are the questions you need to ask your partner or friend before taking the leap

1. Do either of you have any debts?

Before buying a home together, you'll need to know about your partner or friend’s financial situation.

Now’s the time to get everything out on the table.

So, do they:

have any savings they may not have disclosed?
have their name on the deeds of any other property?
have another mortgage they’re currently paying?
have any debts - including:
- credit cards
- personal loans
- payday loans
- student loans
- hire purchase agreements
- or any county court judgements against them?

Lenders will check your credit score to decide whether or not you are eligible to borrow money.

A good credit score means they’ll give you access to a wider range of mortgage options.

A bad one may put them off lending altogether.

2. How are you splitting the deposit and mortgage?

You’ll need to save a deposit that’s at least 5% of the cost of the home you’d like to buy in 2022. Most banks prefer first time buyers to have a 10% deposit.

The average home today now costs £256,900.

If you want to buy a property worth £250,000, here’s what you’d need to save for a deposit in 2022:

5% deposit: £12,500
10% deposit: £25,000
15% deposit: £37,500

What’s the minimum deposit I need to buy a house in 2022?

What if one of you has more money for the deposit?

Although most people go 50:50 on the deposit, it’s still very common for one person to put more money in.

And when they do, our survey showed that 90% think it was a fair thing to do.

But 33% said it caused arguments in their relationship, and 1 in 5 said they argued about it at least once a month.

So don’t let your deposit split make things awkward.

The key? Putting it all in writing.

You might assume that, if it comes to selling up and going your separate ways, the person who put in the bigger stake would simply take it back before splitting the proceeds.

But without a written legal agreement specifying what happens if you split up or sell, you may not get all of it back.

Similarly, if one of you earns a lot more than the other, they may end up covering more of the mortgage.

Jennifer Williamson, partner at law firm Blake Morgan, says she’s seen an increase in the number of property pre-nups coming her way.

'More and more people are asking us about property prenuptial agreements to protect the deposits they have put into properties with their spouse or partner.

'A cohabitation agreement can be invaluable.

'It sets out the share you each own of the house, and can specify how you are going to share payment of the mortgage and other bills.

'Without one, you’ll legally own the property 50:50, despite any unequal contributions.'

Would you both be happy for the property to be split 50:50 if things go pear-shaped?

To protect you both if things go awry in the future, you need a cohabitation agreement.

“These agreements can save thousands of pounds and months of stress if a separation does happen.,” says Jennifer.

3: How are you splitting the bills for utilities and food?

If you’re both earning roughly the same amount, you may decide to split the bills equally for utilities and food.

You may choose to set up a joint account for the bills to come out of and both contribute a certain amount each month to cover the costs.

If one of you earns more, you may decide that person commits to paying a greater share.

One of you may love higher end supermarkets and spending lots on food, the other may prefer the cheaper option so they can save money for things like holidays.

All of this needs to be ironed out first so you don’t run into disagreements later.

If you’re planning to have children together and one of you needs to reduce their earnings to care for them, you should also decide how this will work in terms of covering the bills.

Two friends sharing a box of chips by the seaside on a windy day

4: How are you going to cover the maintenance or renovation costs for the home?

You’ll also need to think about maintenance costs to keep your home functioning well and looking ship-shape.

Are you planning on doing any renovations or redecorating work? How will you split the costs for this?

When buying a home together, you’ll also need to get home insurance to protect you if things go wrong, like a burst pipe or a burglary.

There are two types of home insurance, buildings insurance covers the bricks and mortar, while contents insurance covers everything that would fall out of your house if you were to turn it upside down.

5: How will ownership of the property be split?

There are different ways of buying a home together. You can choose to go in as 'joint tenants', where both parties own equal shares on the property, or as 'tenants in common' where each of you owns a different percentage stake of the property.

Let's take a look at what each one means.

6. Think about how you will live together

‘Moving in together is a really exciting step in your life. And sometimes that excitement gets in the way of considering your individual time,’ says Jo.

‘You probably won’t want to spend time with your partner 24/7, but with working from home becoming much more of a lifestyle ‘thing’, you may find that is exactly what happens.

‘Pre-empt the frustration you may feel at spending every waking hour together.

'It’s OK to feel that way. Very few couples, even in the honeymoon period, want that by choice.

'So make sure you have the convo about seeing your own friends individually or pursuing your hobbies by yourself up front.

‘Apart from having a bit of ‘me-time’ being very good for your well-being, it gives you lots to talk about when you are together as a couple.

‘It’s a matter of getting the balance right, not always that easy if your partner has a different view and may want more or less freedom than you, so make sure you have the conversation to avoid any potential resentment.

‘Ditto re chores – another trigger for rows – agree on the right balance for you both before you move in.’

7: How are you going to split the housework and cooking?

Trust us, a plan on how this is all going to work in advance will save a whole world of pain and resentment later.

Relationships can break down over one of you carrying the load in this department.

Think about:

Is your partner/friend tidy?
Are you planning to get a cleaner and how will you split the cost?
If not, will you split the housework 50:50?
How will you divide the cooking?
Do you even both like the same food? If not, will you prepare your own meals?
Are you both energy conscious when it comes to turning the lights off or firing up the heating?

Once you’ve sorted all of this out, the rewards of having a system in place that you’re both happy with will be huge.

Then you can get on with enjoying all of the great stuff about living together.

'Once you’ve had the difficult conversations about money and everything else, give yourself a congratulatory pat on the back,' says Jo.

'Having explored and made key decisions regarding your finances, you will be in a much better place to get on with all the lovely parts of your relationship.

'And you’ll be ahead of the game in couple goals, being much less likely to argue about money, the number one issue couples are most likely to row about.'