It is a relatively common situation where borrowing has gotten out of hand between couples and they need to consolidate all of their existing loans in order to move on with a project or make a major purchase. In many cases the consolidation loan could have been avoided with a little planning but it’s hard to plan ahead if the left hand doesn’t know what the right hand is doing so here are a few ideas that might just help you to manage your money as a couple.
Looking at a joint loan with your partner or spouse can greatly increase the amount you may be able to borrow and increase the lenders who will consider you. However be transparent with each other about your credit status. If one of you has bad credit such as: ccj`s, defaults or mortgage arrears this could cause the loan application to be refused.
A mortgage or remortgage can sometimes seem like the holy grail of finance especially whether you’re a young couple starting out buying your first house together or a seasoned pair looking to move on or improve your home. Naturally the more income you can bring to a mortgage application the better your buying power so logically it makes sense to have both partners named on the mortgage application right? Well, all things being equal yes it does and a lot of couples will enter into their first mortgage together but is this always the best strategy?
Like most decisions it depends on your individual circumstances, for example if you have a great credit rating but your partner doesn’t you might well be harming your chances of getting the mortgage you need by adding your partner to the mortgage. On the other hand if you’re the partner who’s had financial difficulty in the past you may find that you are contributing to a mortgage on a house that you don’t own and because your name isn’t on the mortgage your credit score won’t improve by association.
One thing that you should always do before deciding on a mortgage is to get qualified mortgage advice. A good mortgage advisor will guide you through the pro’s and con’s of a joint mortgage and suggest the best way to proceed in way that’s best for you.
According to the Daily mail only around 38% of couples in the UK hold a joint bank account in 2018 and although this figure varies between regions it’s safe to say that the trend is heading towards people wanting to retain their financial independence rather than combining their finances. Of course there are still some advantages to keeping a joint bank account fed on a regular basis to make sure the bills are taken care of and if there is an account fee you only pay one between you. There are some downsides too.
When you take a joint bank account you make a financial association with your partner which is recorded by the national credit reference agencies so their financial conduct will now affect you - so it’s good to make sure that your partner is on the straight and narrow financially before you commit to a joint account . If not try to help them repair their credit rating then join forces.
In 2015 controlling and coercive behaviour fell under the Serious Crime Act for the first time giving protection against financial abuse. But consider, if you happen to be the one who is regularly left to look after the finances and sign the cheques and make the cash withdrawals from the joint account, could you be exposed to a criminal investigation if the relationship were to end badly? It’s worth considering all the options before going down the joint account route, like all financial commitments it can be a good idea in principal but it can be open to abuse.
From being teenagers most of us look forward to being financially independent and when we start our first jobs it can often feel like you’ve won the lottery …….Until of course you being to realise just how much everything actually costs! Why then would you want to go back to a situation where someone else gets a say in what you can spend and when. Well let’s be brutally honest about this one, unless you actually happen to have won the lottery then how much you can spend? It is still pretty much limited by what you earn and how much it costs to cover your essential costs. The question then comes down to how do divide up what’s left.
It’s estimated that 28% of people in the UK prefer to keep their finance totally separate and it is suggested it’s the ladies who are most keen to retain their financial independence.
There is much more to arranging money whilst being part of a couple than dividing up the surplus income and whether you like it or not you need to consider your financial future from a more global point of view. One key area that you need to address from early is how, when and why as a couple you are going to borrow . At My Sort of Loan one type of loan that we are regularly asked to arrange is a UK debt consolidation loan and the reason for this is that no matter how well the household bills are catered for, when it comes to borrowing people tend to go off and do their own thing until one day some find they find that they are over committed.
A lot of people tend to forget that some kinds of credit are actually borrowing at all. It’s easy to forget that the overdraft that you dip into every month is a short term loan and that if you continue to hammer the credit cards, one day they might hammer you right back. Take these misconceptions and multiply them by two and you can very quickly find that your healthy surplus income has been diminished to the point where you are both working just to keep the credit card, higher purchase and personal loan bills paid.
It’s not always easy to talk about responsible levels of borrowing in a relationship and one common feedback we hear is, `what I borrow is my business and nobody else’s`. But allowing your borrowing to go unchecked can have severe consequences, especially once you’ve committed to a joint mortgage. Once you have a mortgage you have property and once you have property you have something that a lender can use as leverage on you to recover their money. If you get out of shape on your personal borrowings now it can have massive impact on your partner just as much as it has on you. In extreme circumstances a lender can be allowed by the courts to put a charge against your house that will have to be paid before you can remortgage, take a second mortgage / homeowner secured loan or even sell your house to move to another one. Your partner won’t thank you for that so - it makes sense to sit down and discuss where your borrowings are now, where you’re limits are and what they are actually doing for you as a couple.
Once you’ve got a handle on your borrowings it’s a good idea to talk about how much you can put away for the things that you don’t want to borrow for. Whether this is something as simple as your annual holiday or a more long term plan such as setting aside a fund for your children’s education. Again there isn’t a right or wrong answer to how you should do this, but again you need to agree how much is to be set aside, when and where. Once you’ve established these basics you need to decide who can access the account and when and this is where the trust in your relationship comes in. There’s no point in setting aside money for a rainy day if one or both of you are going to dip into the savings because you hit your credit card limit. Again it’s about agreeing some rules and making sure that you know what your expenditure is like both individually and as a couple.
If you are married and you’ve had the conversation about your joint finances you might well be wondering if it’s really a good idea or if you should keep your finances completely separate. Well I’m afraid we can’t give you the answers but we can go through some of the Pro’s and Con’s for you.
Pros - Providing you both have a good credit rating a mortgage shared is a buying power increased and you can get the house you want rather than settling for one that you can live with for a few years until you can trade up to the one that you want.
Cons - If one of you decides to take time out of work the mortgage won’t take off so if you have plans to have children you’ll need to consider if you can maintain the bigger mortgage with a loss of income.
The Joint Account
Pros - A great place to have your wages paid into to ensure that the direct debits are paid on time every time and where your surplus income can be divided up and filtered out to your individual current accounts and savings.
Cons - With both of you having access to the account at any time it’s not a great idea if one of you has a habit of overspending and dipping into the bill money.
Unsecured Borrowing / Personal Loans
Pros - Just like with the mortgage your combined borrowing power is better than it is singularly.
Cons - Can you cope with the cost of increased borrowing power if one of you comes out of work? Do you want to be able to borrow on your own? A joint loan can limit your affordability as a prospective lender might not take into account that two people are liable for the monthly payments on an existing loan.
Savings & Emergency Funds
Pros - The more money you can put into a high interest savings account the more interest it will earn.
Cons - You both have access to this account and you both have an equal claim to it so treat it as a fully joint exercise and don`t dip into it without agreeing with your spouse first!
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