How buying with friends could help you onto the property ladder

Joining forces with friends may be the only way some first-time buyers can afford to get onto the property ladder, but it’s important to weigh up all the pros and cons of co-owning a home first.

Steep property prices, the challenge of saving up a deposit and getting a big enough mortgage can make it a real struggle to buy a home alone. According to Halifax’s latest House Price Index, the average price of a property in the UK is £236,800, which means a first-time buyer would need to save nearly £24,000 just to put down a 10% deposit.

Pooling resources with one or more friends can make it much easier to build a deposit, and the more you can afford to put down, the greater the access you’ll have to more competitive mortgage rates.

Another advantage of co-buying is that you might be able to borrow more than you could if buying alone, because the lender’s affordability calculations will be based on two incomes rather than just one.

More lenders catering for co-buyers

Lenders are increasingly recognising demand for mortgages which can be taken out by two or more friends. M&S Bank, for example, offers a mortgage which enables up to four friends to purchase a property together.

Other lenders also allow groups to buy, although some will only permit a maximum of two friends to purchase a home together. Even those that allow four on a mortgage may only use the two highest incomes to decide how much to lend.

Bear in mind that if you’re taking out a mortgage with friends, everyone on the mortgage will be jointly liable for mortgage payments. That means if one person falls behind with their payments, the others will need to stump up what’s owed.

Things to consider

If you’re considering buying a property with friends, you’ll need to think about what might happen if one of you wants to sell their share in the future.

To avoid any potential disagreements, people who buy jointly often choose to set up a formal agreement, known as a ‘deed of trust’. The deed outlines how much each buyer has contributed to the property deposit and what you will do if one person wants out. Having this in writing means everyone knows where they stand if things change.

It’s also important to decide how you want to structure your ownership of the property. If you decide to co-own the property as ‘tenants in common’, you can own different shares of the property. If you die, you can choose who to leave your share of the property to.

Alternatively, you may decide to own the property as ‘joint tenants’ which means you’ll have equal rights to the whole property. If you take this route, however, if you die, the person you have bought your home with will automatically inherit your share.