When it comes to managing your money, there are some perks and pitfalls of being in a relationship. All of a sudden, you could be paying half of all living costs and you could even improve your chances of getting on the housing ladder.
When money is tight, it’s good to have some support. However, it pays to be smart and to avoid some common pitfalls when your finances become closely linked especially if you hit troubled times as a couple or even separate.
Here are our tips to help you live in financial harmony with your partner. It pays to be smart!
Honesty is the best policy, so make sure you tell your partner if you have any debts, assets and savings and ask them to do the same. It’s better to be honest from the start so that you have a true, honest picture of your financial life together.
Make sure you have a valid will in place
While many people, especially those who are in their 20s and 30s, put off writing a will, it’s essential that you do this regardless of your relationship status. As well as considering any joint or lone assets, it’s important that you have nominated beneficiaries of your pensions and if you have children, who will take care of them if you are no longer around.
If you die without leaving a will, the law will decide who gets what and how much regardless of what your relationship with those people was like when you were alive. By leaving a will, you’ll prevent any unnecessary distress at a difficult time for friends and family. This is especially important if you have bought a property with your partner as they could suddenly find themselves having to sell up if nothing is stipulated in a will.
Check your credit score
If you or your partner have a poor credit score, this can negatively impact the other party. When couples apply for a joint finance product such as a mortgage, bank account, credit card or loan, their credit reports become linked. If one has a more positive score than the other, it could mean that the partner with poor credit is looked upon more favourable and find it easier to secure better lending rates. Similarly, if one of you has a very poor credit score and has previously been bad at managing debt, this can have a negative impact on any lending rates offered to both of you.
Don’t forget, if you and your partner go your separate ways, it’s essential that you ‘disassociate’ with credit reference agencies and ‘uncouple’ your credit reports in the eyes of lenders, especially if your partner’s credit score could have a negative impact on your credit rating.
Think carefully about joint bank accounts
It might seem like a good idea to have a joint bank account and to combine your money, but there are some things to consider.
Do you have the same attitude towards money and spending? If not, this can cause problems in a relationship, especially where one partner is thrifty, and one has a more relaxed attitude towards spending. You need to decide whether these differing attitudes towards money are going to cause problems further down the line.
If one of you has a poor credit score, the other may suffer as a result, as their credit score may be downgraded following this type of association.
Remember that if the account is overdrawn at any time, regardless of who made the transactions, both parties are liable. If the relationship does end, the joint account could be used by one account holder to take any funds, leaving the other without any access to money and no way of recouping these funds.
If you are concerned about this happening, your bank may be able to impose a requirement that account holders need to give permission for any spending that sits outside the normal standing orders and direct debits.
Purchasing a home
Buying a home with a partner is a huge commitment so it’s essential that you have all the information and facts before taking this step. Mortgage lenders will ask that borrowers are ‘jointly and severally’ liable for the outstanding mortgage, which essentially means that the lender can seek full repayment of the mortgage from either or both parties.
Each mortgage borrower will need to be able to meet the lender’s requirements, although it’s much easier to do this when pooling wages and deposits to secure a mortgage offer. Lenders will look at the monthly outgoings and income jointly when deciding how much they can borrow. It’s essential that you both work out a budget to set realistic expectations of how much you can afford to repay each month, and accounting for any rate rises.
Speak to one of our independent mortgage advisors for impartial help and advice, as well as access to the widest selection of competitive mortgage deals in the UK.
The Mortgage Hub is an independent mortgage advisor serving the greater Glasgow area. Whether you are planning to buy your very first home and need the right first time buyer mortgage, or are looking to re-mortgage due to a house move or to growing family – we understand your journey is so much more than a financial process, it’s a journey to achieve your dreams, improve your lifestyle and achieve your true potential.