Moving into a rental house-share with your mates may sound like the dream scenario (and a bit like a real-life version of ‘Friends’).
But unless you organise bills such as gas, electricity, water, broadband and TV licence carefully, you could end up having fall-outs.
It’s unlikely that one housemate will want to get lumbered with having to pay all the bills on behalf of everyone else, so you need to give some thought to how payments will be shared fairly – while also ensuring all bills get paid on time.
With a joint account, all housemates sign up to one account and put money into that account at the right time. The shared household bills are then paid from there.
While signing up to a joint account may seem to offer a simple, flexible and convenient solution, it’s not a decision to take lightly.
Crucially, if things go wrong, this could have long-term implications for your credit rating.
Let's take a closer look at setting up a joint account and the pros and cons of doing so.
How to set up a joint account
Speak to your chosen bank to find out what documents you need to sign, and what proof of address and ID are required to open the account. All housemates may need to visit a branch of the bank as part of the process.
While some banks will only let you open a joint account with one other person, most will allow you to have four or more people named on the account.
Each of you will need to sign a mandate or ‘authority.’ This sets out what each person is allowed to do, such as writing cheques or withdrawing cash. It also outlines each person’s responsibility over the account.
Be aware there is sometimes a ‘lead’ account holder who can carry out more actions without the permission or signature of the other account holders.
Pros of a joint account when renting
A joint account for your shared rental home can:
be an easy and transparent way to manage shared expenses and pay bills, as everything is set up in one place
help prevent arguments about money as the bill-paying responsibility is shared among all tenants
make it easier to budget
save the hassle of having to repay one another
be a convenient way to track your spending.
Cons of a joint account when renting
On the other hand, a joint account:
creates a financial link or ‘association’ between you and other account holders – and you will then be ‘co-scored’. If one of the other account holders has a poor credit record it could potentially damage your credit score. This could make it harder for you to get credit in the future, even in your own name, as lenders may check that person’s credit history as well as yours.
might affect your personal credit rating if someone fails to make a contribution and a bill payment gets missed
makes you jointly responsible for any debt on the account. So if, for example, the account becomes overdrawn by one of the other housemates, you are all responsible for paying the debt. In other words, you could end up footing an unfair bill. Once again, this could adversely affect your credit rating.
can mean you lose a bit of privacy, as all transactions can be viewed by all account holders
can result in situations that are very difficult to resolve, such as if one person takes cash from the account without your consent – and there aren’t many options for getting it back.
Top tips if you set up a joint account for your house-share
Only opt for a joint account if you are living with people you trust. After all, they are going to have as much right to the money in the account as you do. You are unlikely to be able to control or restrict this.
Make sure everyone agrees on how the account will be run, and that all account holders have equal access.
Have an arrangement where everyone pays in a set amount which will help build an emergency reserve fund.
Set up direct debits and standing orders for each company you need to pay, so payments will be taken automatically.
Check all the household bills when they arrive to ensure you’re all paying in enough to cover the costs.
When signing the original mandate, consider asking for ‘no debit cards or cheque books’ to prevent potential problems. Also consider requesting that all outward transactions require authorisation from everyone named on the account.
Keep a close eye on your bank statement to ensure everything is in order.
If issues do arise, talk to your housemates. Acting sooner rather than later can prevent small issues from escalating into bigger problems.
When setting up a joint account for bills, make sure you have a separate bank account for your personal spending.
If problems crop up
If you’re having issues with your fellow account holders, cancel the mandate. This will freeze the account so that no-one (including you) can withdraw money.
Your bank will then only un-freeze the account once everyone agrees on how to split the balance remaining in the account.
For this to happen, the bank will need all account holders to agree – usually in writing.
How else could you split the bills?
If you don't fancy a joint account, there are other ways you could go.
You could consider assigning different bills to different people. This might involve one housemate managing the gas and electricity, and another taking responsibility for the phone and broadband.
Once you’ve set up this arrangement, you need to split the bill by the number of people living in the property. You then need to let everyone know who owes what. It may help to set up a spreadsheet.
Get all names registered on the account – this should mean you don’t end up in a scenario where one person leaves, and someone else is chased for an unpaid bill.
Check out the host of apps and tools designed to help you split household expenses fairly.
Acasa, for example, is an app which helps you to choose utility suppliers and calculate everyone’s share of the bill.
Elsewhere, with Splitthebills, you select which bills you want to split, and the tool then bundles the bills into one payment – and all housemates pay one amount every month. This means there is no need to deal with multiple suppliers and different payments.
Note that while bill-splitting companies may sound appealing, you need to do your homework before signing up. Be aware that some firms might charge above the market average.