A financial guide to sharing a home together

Thinking of moving in with a partner, friend or family member? Make sure you are aware of the financial and practical implications of sharing a home.

There are many reasons to move in with friends, family or a partner - renting or buying is expensive, so sharing living space can be a practical and cost-effective solution.

If you live in a city, it is also a good way of making sure you are able to live closer to where you work, so saving you commuting costs as well as the time spent travelling.

Before you move in together, it’s important to talk about how you’ll sort out the household finances.

The 5 financial things you need to know before moving in together

You might have different ideas to your prospective housemate about how to pay the bills and manage the money so the best way to see off any conflict over finances is to make sure you all know from the start what your responsibilities and challenges may be.

These include:

  • Who pays the bills

  • How your flatmates could affect your credit rating

  • Whether you use a joint bank account to pay the bills

  • The financial ground rules

  • Any implications for your will or inheritance

1. Who pays the bills

Whether you are living together as flatmates, a group of friends, or a partner, there will be one person who will earn more than everyone else.

In order to make sure the bills are paid you will need to decide how you split the costs.

Deciding on how you want to split broadband, utilities, rent or mortgage costs is vital if you want to avoid arguments.

  • You may decide to split all the costs equally, or pay a percentage according to your income

  • In legal terms it is the person whose name is on the bill who will ultimately be left to pay if everyone else leaves

  • If you are taking on a phone and broadband service then each person named on the contract will be credit-checked and will be responsible for paying

  • Council tax bills will also need to be in all your names

2. How your flatmates affect your credit rating

Your credit rating is a file of financial information that lenders check before they give you credit. It is compiled by credit reference agencies including Experian and Equifax.

Your credit rating can affect the deals you are offered for credit cards, personal loans, mortgages and even broadband and TV contracts and your rating will be affected by missed payments or multiple applications for credit in a short period of time.

When you apply for joint credit with someone else you create a financial association. This would be if you applied for a mortgage or joint bank account, or even shared names on a broadband contract in some cases. 

The finances of the other person will be linked with you on your credit report under a section called Financial Associations.

What is a financial association?

This is when you share a credit account with someone, which means you share credit report information too. 

You'll become financially associated with someone if you:

  • Open a joint bank account with them

  • Apply for credit together, this includes a mortgage or loan

  • Get a joint County Court Judgement  

Marriage doesn't create a financial association, and you aren't legally responsible for your partner's debt unless it's in your name as well. 

If you’re planning on moving in with others, it may be a good time to check your credit report. 

3. Using a joint bank account to pay the bills

If you are moving in with a partner, then having a joint bank account might seem a sensible option to share the household costs.

Using a joint account for bills can be a good budgeting tool. You can keep your own bank account and set a joint one up for bills, for example.

Some couples choose to pool their salary and earnings. Using a joint salary to pay bills means you need to set up a standing order to pay your share of bills into the joint account. 

However, it’s worth noting the bank or building society can ask either one of you to pay off the whole debt on a joint account (such as an overdraft) if they wish. That means if you and your new partner split up and he or she refuses to pay, you could be asked to repay every penny.

Joint loans and debt – what it could mean for your finances

Before you and your new partner take on any joint loans, such as a bank loan or a mortgage, it’s important to be clear about what it could mean for both of you.

First, you are each responsible for paying off the whole debt.

Second, when you take out any form of joint credit, your credit records (which show how promptly you’ve repaid money you’ve borrowed) become linked.

This means that if you or your partner applies for credit in the future, the lender will be able to check both of your credit records.

4. Set some financial ground rules

When you are sharing living space as well as dividing up the chores, you will need to agree a budget for general items like milk, bread, cleaning products and loo roll to which everyone contributes.

If you are a couple, having a set budget is a good idea, especially if one of you is more of a spender than the other.

Tip:  A kitty may sound like an old-fashioned idea but having a petty cash box you all agree to put a set amount into each month means when you need to make small purchases, such as a bottle of milk or coffee, one person doesn’t end up always paying.

5. Consider making a will 

If you are young and renting with friends you won’t need to write a will. 

But if you co-own a property, or have dependants like young children, then it is important to set out where you want your money to go in the event of your death.

Couples can write simple wills leaving everything to each other. Wills cost from £500 for a lawyer to write and it is a good idea to get professional advice as a badly-written DIY will might be worse than no will at all.

If you are married, then under the intestacy rules your surviving spouse or civil partner will inherit the whole estate if you have no children. 

If you are cohabiting and not in a legally-recognised partnership, then it is particularly important to ensure you have a will to protect your partner in the event of your death.

Consider a living together agreement

It’s a good idea to draw up a ‘living together agreement’ if you’re moving in with your new partner but not planning to marry or form a civil partnership.

That’s because couples who live together have very few rights in law if their relationship ends.

If the worst were to happen and you and your partner split up, a living together agreement can set out what you’ve agreed to do about your home, possessions you’ve bought or own, bills and debts.

Find out more about drawing up a ‘living together agreement’ on the advicenow website

16 December 2020