A guide to couple's finances and why you need a cohabitation agreement

Key Takeaways 

Buying your first home together means dreaming of happy times ahead. But it’s also the time to be serious. What would happen to that home and everything you own, should you decide to go your separate ways?

In England and Wales opposite and same-sex couples who live together – or ‘cohabit’ in legal language – do not have the same automatic rights as married couples.

ONS census statistics from 2020 found that the number of cohabiting adults in the UK rose by more than 800,000 since 2010. Plus, in 2022, 63% of mortgage completions were made by joint first-time buyers. However, data also shows that marriage rates are at their lowest since records began, meaning that more people are living with friends and family, or as an unmarried couple.

This is particularly the case in London where the average first-time buyer is not married when they purchase their first home. The average age of a first-time buyer in London is 33, whereas the national median age people get married is between 35 and 38 for men and between 33 and 35 for women.

Barratt London conducted a survey of 500 British adults and found that:

• More than half (61%) have never heard of a cohabitation agreement before.
• One in four (25%) were unaware that unmarried couples do not have as many rights around property and finance as married couples.
• One in three people in a relationship but not married (32%) did not know that they had less rights around property and finance as a married couple.

If you live with a partner but are not married, a cohabitation agreement creates a legal framework which sets a solid foundation for life together in your new home. If you want to move in with complete peace of mind, it’s advisable.

Think of it as a safety net against costly court proceedings should a future dispute arise. And once it’s drawn up and signed, you can pop it in a drawer and forget about it.

We asked family lawyer, Elizabeth Jones from Parfitt Cresswell, for her advice about cohabitation agreements:

“I would recommend a cohabitation agreement to anyone who is planning to live with someone, whether on relationship basis, on a financial basis sharing living expenses, or on the basis of familial and/or friendship bonds.

“The dangers of not using a cohabitation agreement are uncertainty over ownership of property, furniture and effects, which can be very stressful and expensive to resolve via the courts.”

Remember, it’s your agreement and you set the terms. Your list can cover everything from how the deposit was funded to who gets custody of the cat.

However, here are some key points it should include:

• Who has contributed what to the home you have bought together. This will detail how the deposit was funded, for instance. Did one parent lend or give you money? They may want it back if you decide to split and sell the house.
• What financial arrangements you will make while you are living together. If one partner is going to pay a much higher percentage of the mortgage or contribute more to joint bank accounts and savings, it can be noted. This bit may also include bills, food shopping and funding the general upkeep of your home.
• How your home should be divided if you sell. If one person contributed more than the other to the purchase, they may own a larger share. This will depend on how you decide to organise ownership. Joint tenants own equal shares, tenants in common may own fractional shares. A cohabitation agreement protects each share in case of future dispute.

Elizabeth Jones says that a strong cohabitation agreement should include:

• Detailed personal information and evidence of personal finances to avoid any accusation of misleading the other parties.
• Whether the property will be held in fixed shares or is a more adaptable approach preferred.
• How household expenses will be shared.
• How furniture and effects are to be owned and maintained.
• Whether a buy-out clause is available to all parties or not.
• What if any provision will be in place for a survivor should a party die.
• An agreed process for valuing and selling the property upon relationship breakdown.

“The pros are that an agreement gives clarity and peace of mind. It can avoid the need for very costly and unpredictable court proceedings by declaring how the property, furniture and effects will be owned and maintained. Third party investors such as ‘the bank of mum and dad’ can have the terms of their investment in a property agreed & protected.

“The cons are that cohabitation agreements are a recent phenomenon and the courts have processed few cases so practitioners can’t give certain advice upon enforceability yet. That will change with time.

“Soon, the cohab-agreement will be as ubiquitous as the pre-nup but we’re not quite there yet, though demand is slowly growing.”

Barratt London’s survey found that only 10% of people would not consider using a cohabitation agreement.

Barratt London also asked what situations people would consider a cohabitation agreement for:

Who can help you with a cohabitation agreement?

A high-street solicitor specialising in family law should be able to do it for you. Or ask the Solicitors Regulation Authority (SRA) or your New Homes Mortgage Adviser (NHMA) for advice. Also, look online to find Trustpilot reviews and compare costs to find a solicitor that’s suitable for you. A fixed fee (this means that all the legal work required is included in the price) cohabitation agreement costs from around £900 including VAT.

Although you devise your agreement together, each partner requires independent legal representation. One partner presents the agreement, the other is asked to agree to it. Solicitors oversee this process. There are DIY cohabitation agreements available on the internet but treat these with caution and always seek legal advice.

Elizabeth Jones says: “First speak to the person or people you are planning to live with to see if they are willing to enter into a cohabitation agreement. If so, then consider approaching an experienced family lawyer.

“Most family lawyers will charge on a time basis, thus, the more complex the agreement the more expensive it will be. Further preparation of such an agreement is likely to coincide with an expensive property purchase, that said, it is a worthwhile investment to ensure clarity and security.”

When to refresh your cohabitation agreement

You will need to revisit and refresh your cohabitation agreement if either of you:

• Becomes seriously ill or disabled
• Loses their job or faces a drop in income
• Receives a large inheritance

You will also need to refresh if:

• You have a child together
• You decide to get married

Saving for a deposit together

Saving for a deposit is a challenge but think how proud you will feel when you’ve achieved it. Even if you choose to keep separate bank accounts, it’s important to get into the habit of saving together.

First work out the amount of deposit you need. Agree how much you can both afford to put away each month. Iron out any issues, especially if one of you earns more than the other. How long is it going to take to meet your goal? Set a date and circle it on a calendar.

Then take time to research the best savings accounts and schemes for you, not forgetting Government-backed incentives such as London Help to Buy and Help to Buy ISA.

Banking advice

• Got your eye on a particularly attractive regular savings account? You may need to hold a current account with the same bank, so put the necessary steps in place first.
• If you’re saving for a deposit, you won’t need instant easy access to your savings. Choose an account which requires notice to withdraw cash, and you’ll be less tempted to dip into it for unnecessary purchases.
• Banks and building societies often offer high initial interest rates on savings to tempt you in, then drop them after six months to a year. Don’t be afraid to switch to a new account if you can find a better interest rate elsewhere.

Ideas to help your savings pot grow

• Does your employer offer a savings scheme which deducts a set amount out of your salary every month? You won’t miss the money because it never even hits your bank account.
• Switch to current accounts which offer cashbacks or rewards on utility bills and shopping. It’s free cash, so direct it straight towards your savings account.
• Practise ‘skimming’. When you’ve met your expenses every month, transfer the remaining balance of your current accounts to savings.

Budget now and reap the rewards later

Still wondering where all that money is going to come from for your target figure? Take a look at your lifestyle. You’ll be amazed at the savings you can make. Streamlining your budget now will pay off when it comes to applying for your mortgage. Lenders will want to see proof that you can manage your money.

• If you rent, halve expenses by moving in together now. Or you could stay with your parents until your deposit is saved.
• Check you’re on the cheapest no-frills deals for all utility bills, including mobile phones.
• Cancel all unnecessary subscriptions, memberships, and costly monthly commitments. Could you swap that expensive gym to a pay-as-you-go pass and save hundreds a year?
• Keep track of your day-to-day spending and saving with a money-management phone app such as Money Dashboard or Squirrel. It’s amazing how quickly those flat whites and flapjacks add up.
• Buy a cookbook and learn to make your favourite meals together. You’ll be able to save money on restaurants and takeaways. Plus, it will be great practice for the kitchen in your brand-new home.

This guide to couple’s finances was produced in collaboration with L&C Mortgages, the UK’s largest fee free mortgage broker and adviser.

Looking to get on the London property ladder? Browse London new builds or read our guide on 10 good reasons to buy a new build in London.