Two of the major hurdles to buying a home – as you may no doubt already be acutely aware – are raising a big enough deposit and being able to afford repayments.
If you are saving hard but finding your efforts are in vain as house prices spiral or if your income is not quite enough to get you the loan you need, it’s easy to become despondent and give up.
But there is another solution. One route many more first-time buyers are starting to use is to join forces with friends to buy their first home.
Jeni Browne, sales director at Mortgages for Business, described it ‘a really great idea with lots of benefits’.
But, of course, there are a several things you’ll need to consider before entering this kind of arrangement and we’ve covered those below.
The benefits
But first – what are the ‘pros’? The obvious advantage is the fact you can pool your financial resources. Buying alone, with a salary of £30,000, for example, would allow you borrow £135,000 – based on the lender using a typical calculation based on 4.5 times income – which would be a stretch in most parts of the UK today. But team up with a friend, and the two of you – if you were on similar salaries – could borrow £270,000.
It’s likely you’ll have a far more generous deposit if your savings are added together. This will put you in a much better position when applying for mortgages.
Some lenders allow more three or even four applicants on the mortgage, so you could even join forces with more than one friend if you have good relationships.
Once you have moved in you can also split bills and any other household costs. Plus, you will also be dividing up the conveyancing fees, stamp duty (if applicable) and any mortgage fees.
The financial benefits make it very tempting indeed.
The drawbacks
There are, however, a few downsides to the arrangements. While these are not insurmountable, they are certainly worth considering and discussing with your friends in detail.
The obvious one, of course, is how it might impact your friendship.
Ross Counsell, chartered surveyor and director at regulated property buyers, GoodMove, said it could put a strain on the relationship therefore you should be completely honest about your financial situation before buying together.
“If you or your friend’s financial circumstances change and you’re struggling to make payments, this can put a strain on your relationship.
“Your friend may also want to move out earlier to live with a partner or by themselves, so you need to ensure you have spoken about long-term goals to ensure you’re on the same page.”
Jeni explained this was the main factor to discuss before buying with a friend. “The key thing you will want to think about is if one of you wants to move out and get back any money you have put into the property,” she explained.
“Typically, this would be done by a remortgage, where the ownership of the property and the mortgage are transferred into the names of the remaining owners.”
Tenancy agreements
To make things clear if one of you does decide to move out in future it is a good idea to consider the ownership structure.
Ross explained most people buying with friends opt to be named tenants in common – this means you both own a partial share of the property rather than an equal share.
“You can individually sell, give away, or remortgage all or part of your shares without permission, and gives you more flexibility if one person wants to move out later on,” he explained.
The alternative is a joint tenancy agreement. This is where you both own an equal share of the whole property. Any sale or remortgaging of the home needs to be agreed upon by all tenants so it can be more difficult moving out later on.
How to ensure harmony
Buying a home together is a huge step to take with a friend, it’s not like going on a two-week holiday – this is a commitment.
Ross advises, if possible, to live with or rent a property with the person before committing to buying a home together. This will give you an idea of their habits and personality before making a more permanent move.
Make sure you iron out any concerns or house rules right from the very start too.
Ross recommends establishing boundaries and house rules. For example, when having friends or partners over, whose responsibility it is to do chores?
“Living together with a friend is a different dynamic than living with a partner, family member, or alone, so it’s important to set rules to ensure both parties feel respected and listened to,” he said.
And Jeni said the conversation about splitting bills should also happen before you embark on the home buying process.
“I would also encourage you to discuss how you will split bills, etc., upfront,” she said. From my own experience, it’s best to have these conversations in advance, rather than try and thrash matters out once you are in situ.”
Ross suggested opening a joint bank account to make house payments from and ensure that your personal finances are kept separate.
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Case study: ‘So far it’s been great’
Ellie, aged 26 from Leeds recently bought a house with her friend. She said: “I bought a home with my friend last year because I didn’t want to rent anymore but wasn’t in the position to buy by myself or with a partner.
“So far, it’s been great and I’ve enjoyed living with her, thankfully our interior tastes are the same and we’ve had no issues with the financial side of things either.
“I do worry about her wanting to move out soon as she has recently got a new boyfriend, but I know we have enough respect for each other to work something out fairly.”
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You can read Jeni’s advice on buying a home with friends in full, plus her answer to other readers’ questions, in her monthly Q&A column here.
Meanwhile, Ross has recommended this guide for anyone looking for further reading.
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I really enjoyed reading this! Thank you so much for sharing! Great tips!