With house prices a little bit higher than they were five years ago and the tightening of bank criteria for single home buyers, we are getting a lot of enquiries about whether it’s possible to buy with friends - and how to go about this.
Just like any partner, choose wisely. You’re entering into a financial commitment with this person, so they need to be someone you know and trust. They also should be good with their money, and ideally you are both transparent about anything in your past which might affect your ability to borrow money or own a property.
Have an open discussion early on about the expectations of each of you around ownership. How will you split the deposit? How much will you need to borrow for the house? Will you both be living there? Will you have flat mates? How will you pay for the outgoings, and ongoing servicing and maintenance of the house? All these things need to be decided upon and the earlier the better!
From a bank perspective, a purchase with friends is fairly similar to a standard purchase, with very little difference to that of a couple except that both parties will likely be assessed for their personal expenses separately. This is important to get right, so talk to us about setting a realistic budget and ensuring we've got the best fit for you situation.
We need some form of legal agreement between you as to how much you’re each contributing to the purchase, and how the ownership split will be set up.
This will include a bunch of the following information, which a good lawyer will explain to you;
- How the property should be shared (and look on the title) – equally? 50:50 contribution? How is the purchase price being satisfied?
- It may be easier to purchase as tenants in common (rather than joint ownership). This means that each person can deal with their ‘share’ as they wish (and it does not transfer automatically to the other person on death)
- Following on from this - both parties should seek advice around wills – how the property should be dealt with if one of the friends passed away.
- If the friends cannot agree on any improvements – what is the process? The improvement will either (a) not go ahead or (b) go to mediation/arbitration?
- What they cannot do (e.g. sell, mortgage, lease) without the other’s consent.
- What if one wants to sell?
- What if they buy another property (together)?
- What if one gets into a relationship?
- Dispute resolution clauses – how do you resolve any issues.
Some of these things might sound a bit scary but if you get the right legal representative they will help you write an agreement which suits you both, and they'll make it easy. Talk to us about our awesome partners who will make this process easy.
Buying together and combining deposit funds in particular is a fantastic way to get yourselves onto the property ladder together. Often groups of people or good friends will buy and make a five year plan for one to buy the other out (especially when partners or other relationships come into the picture), or to sell in five years time and split the profits to buy their own properties.
We have had a great success with friends buying together and if set up well, it’s easier than you think!
Talk to us today about how we can find a great solution for your situation.
Adam, Claire and the My Mortgage Team