"It’s important prospective homebuyers make sure they’re as informed and prepared as possible before making the decision to buy with another person.”"
- Ben Thompson - Mortgage Advice Bureau
"It’s a difficult time for many homebuyers at the moment. The challenging economy has significantly changed the game for prospective buyers and who they plan to climb the ladder with – if at all now."
With this in mind, here are some things to consider if you are weighing up whether to buy a property with a friend or sibling.
1. Check what you can afford - Before beginning your search, ensure you are open and honest with each other about how much you can financially commit to, from the deposit to the monthly mortgage repayments to general living expenses.
Grouping together usually means you can afford a larger property in a better area, splitting the cost of your mortgage and regular bills. It’s like sharing with friends when you rent – except your money goes towards your mortgage, not your landlord’s pocket.
2. Be honest about your financial history - When you’re talking about money and what you can afford, make sure you also discuss your financial history and any red flags that might impact your chances of getting a mortgage. It can be an uncomfortable topic, but it’s better to know in advance than get rejected for a mortgage because of a mark on one of your credit scores which you hadn’t discussed.
3. Make sure you understand what a joint mortgage is - If you want to borrow a larger amount than your salary would allow as an individual, you may want to consider a joint mortgage. Some lenders allow up to four people on a mortgage agreement, although they’ll usually take the two highest salaries into account to determine the amount they’ll lend.
Every person is jointly responsible for the mortgage payments and fees, and if someone on the agreement is unable to pay, the lender has the right to demand full payment from the other named borrowers. Everyone named on the mortgage will need to satisfy the lender’s individual requirements and meet credit criteria before a borrowing agreement is made.
4. Buy as tenants in common - Own your share independently – and proportionately – to everyone else on the mortgage by being tenants in common, instead of joint tenants. This means you can sell your share to receive a proportionate return on your investment.
For example, if you provide 40% of the house deposit and pay 40% of the mortgage, your share will be 40% of the house price, whether it goes up or down in value.
5. Draft a legal agreement before you sign on the dotted line - No matter what your relationship, be it a sibling or friend, ensure legal documents are drawn up by a professional solicitor so that you’re protected if one of you decides to sell your share of the property, moves away, or gets into financial difficulty. Such documents might include a declaration of trust or a cohabitation agreement.
It may seem an awkward conversation to have now, but it means you’ll both be in a better position if anything were to happen and avoid any uncomfortable confrontations. You don’t want your friendship to go sour, but it’s important to have these details confirmed in writing just in case something goes wrong.
6. Speak to a mortgage adviser - Before you choose a property or even look at mortgages on the high street, arrange an appointment with a mortgage adviser. Not only will they answer any questions you might have, but they’ll help you work out your potential borrowing amount on a joint mortgage before you apply. They also have access to rates and lending offers that may not be available on the high street, helping you to find a mortgage that suits you.
Ben concludes: “As high inflation levels dig deeper into people’s finances, many will be finding it even more difficult to stash away funds for deposits and subsequent mortgage repayments. Keen to keep their homeownership dreams alive, two in five (43%) will now have to alter their plans by co-signing alongside their partner (18%), family member (9%), or friend (7%). Failing that, they’ll need a guarantor (9%).
“There are lots of benefits to buying with someone else, from reducing living costs to halving the deposit that’s needed, to the benefits of socialisation. However, it’s important prospective homebuyers make sure they’re as informed and prepared as possible before making the decision to buy with another person.”
