First-time buyers struggling to get onto the property ladder often find that they can only afford to buy if they club together with friends.
According to Nationwide Building Society’s October House Price Index, the average cost of a home in the UK is now £205,904, while Office of National Statistics (ONS) figures show that if you want to buy in the capital, the average property price is a staggering £487,000.
Given that house prices are now so expensive in many areas of the country, if you’re on a relatively low income, or aren’t able to save up much of a deposit, pooling your resources with someone else can boost your chances of purchasing a home.
A growing number of people are choosing to take this route, often because if they didn’t they would be priced out of the property market altogether. The number of 25 to 44 year-olds who live on their own fell by nearly a fifth (18%) over the past decade to 2015, according to ONS research, indicating that sharing with other people is becoming increasingly popular.
There are several benefits of buying a home with a friend or friends. First, you can pool your savings so that you have a bigger deposit to put down. The larger the deposit you have, the greater access this will give you to competitive mortgage rates.
Second, your incomes will be combined when lenders are assessing how big a mortgage they can offer you. This is particularly useful if you have a low salary and are buying with someone who earns a higher income, as it means you will be able to take out a much bigger mortgage than if you were going it alone. Remember, however, that if more than two of you are buying together, lenders will usually only take the two highest incomes into consideration when assessing you for a mortgage.
There can be drawbacks to buying with someone else. If you or the person you have bought with has a change of circumstances and wants to move out or sell up in the future, this can cause conflict if the other one wants to stay put.
It therefore makes sense to think about how you will tackle this sort of situation before you commit to buying. Many people who buy jointly opt to set up a formal agreement or ‘deed of trust’. This shows how much each of you has contributed to the property deposit, and outlines how you will proceed if one of you wants out and the other doesn’t.
Think carefully about how you structure your ownership too and whether you will own your property as ‘tenants in common’ rather than ‘joint tenants’. Becoming a joint tenant means you have equal rights to the home you’ve bought together and can claim an equal share in any profit when you sell up. Registering as tenants in common means you can each own a different share of the property. You can choose who to leave your share to when you die, whereas if you are joint tenants, the person you have bought with will automatically inherit your share.
Bear in mind too that you will be jointly liable for the monthly mortgage payments, so if the person you’ve bought with defaults on their share of the mortgage, you’ll need to make up the full amount.
More First-Time Buyers getting a mortgage with friends