With ever-increasing property prices, it is becoming harder to get a foot on the property ladder by yourself. While it may not have been something you’ve thought about before, buying with a friend could prove to be the answer.
This weekend celebrates International Friendship Day, and with this in mind, WhatHouse? has run a survey to find out a bit more about your thoughts on buying a home with a friend. We found that just 1.5% of you have bought a home with a friend, and 67.6% of respondents felt that it was too big a commitment to make with a friend.
We thought we would have a look at some of the advantages and disadvantages of buying with a friend, and how it could be a good way to get onto the property ladder.
Sharing the cost
Buying with a friend means that the cost of the major expenses, which could prove a problem if you were buying alone, are shared. These include your deposit, your legal fees, monthly repayments and household bills. Also, remember that just because you are buying the house, you don’t necessarily have to live there. Buying a home is an investment, and it could well mean that when you come to sell the property, your share is enough for a deposit of your own property.
Shop around for the right mortgage
While mortgage lenders will not discriminate against borrowers who are not married or related, it is a good idea to shop around for your mortgage. For friends buying together in their twenties and early thirties, it doesn't make sense to choose a longer-term fixed-rate product as their situations are likely to change in the short- to mid-term future. Similarly, there may be advantages to choosing one particular product over another for each individual case. That is why it is important for borrowers to seek expert financial advice from an independent mortgage broker who can advise on the best options available from across the whole of the market.
Be aware of your credit score
Discussing finances with friends may be harder than talking about them with family or a spouse, particularly if you have significantly different incomes. However, if you are buying a property together you have to be prepared to be upfront and honest about every aspect of your finances. If you are not prepared to disclose personal financial information with your co-borrower then you may need to seriously rethink your decision about who you are buying with. Furthermore, you need to be aware that when you link together on a mortgage, you are also linking your credit profiles. Therefore, if there are any negative points on your credit profile they will also reflect on the other person too.
It is also a good idea to set up a joint bank account, that way the responsibility is not just on one person, and should minimise any disputes.
A declaration of trust
A written agreement, a declaration of trust, could protect you from any disputes in the future. It is important to document who contributed what financially, and what will happen if one of you wants to sell your share. It will outline what each party will receive if the property is sold for a profit. You can also agree what will happen with the property should there be a falling out, a marriage or even a death.
Investing in a property with a friend could have long-term benefits. The sharing of monthly outgoings and a smaller initial deposit will help you save money, and if you choose to sell, whether you are selling your share or the entire property, you could well have made money on the house, which means you could then invest in a property by yourself.
Case studies
Amrit and Kim
University friends, Amrit Saroya and Kim Austin bought their together in Bermondsey, using L&Q’s Shared Ownership scheme. After looking at using the scheme separately, they realised that they would be able to afford more if they clubbed together, so they bought a 55% share in a two-bedroom apartment.
Kim says: “If anything made us want to sell, we have options, one of us could rent out our rooms, or we could sell our share through L&Q.”
Amrit continues: “Our friends joke that we are like a couple! It’s just about having an open dialogue – you just want a home – somewhere you can relax in. It’s a real money saver to split bills, house insurance, boiler cover – all these things that when you’re renting, you don’t really have to think about. For us, it was quite a personal achievement, we do actually own it!”
Nick and Jon
Wanting to beat the rising London house prices, Nick and Jon used the Help to Buy scheme to get themselves on the property ladder. The friends wanted their own homes for a while, but came to the realisation that buying alone was out of reach for the time being. The decided to invest in a property together, so in the long run they could save money and wouldn’t need to worry about landlords.
They bought a two-bedroom apartment at Guiness Homes development, Titanium Point in Bethnal Green. The apartment cost £590,000, and they both put down a £20,000 deposit. Buying their home together mean that their monthly outgoings are now £700 each.
Jon says: “There’s no way we could afford to buy a property individually so thought why not invest together. It is great that we are actually saving money each month and the whole process has been smooth so far.”
Nick adds: “It was always my main aim to buy my own property and pay a mortgage. I think it’s a great investment. Jon and I have been friends for a long time so it makes sense to move in together to help with the finances and live with a buddy.”
While buying a friend may not be the most traditional route to home ownership, it is clear that there are many advantages to buying with a friend, and it could be an excellent way to get your foot on the property ladder.