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Sharing the load

buying a property with friends or siblings

We receive a huge number of enquiries from people who are desperate to take the plunge into property ownership however for many people it is still a distant reality.  These days it is more difficult than ever to take that first leap onto the property ladder and frustratingly many people find their dream is out of reach.

Due to this we have seen an increasing number of siblings buying together and enquiries from people who are thinking about buying with friends.  Read our hints and tips to ensure you are fully aware of what’s involved before you take the plunge.

If done properly, buying your first property with family or friends can be a great idea, however there are important pitfalls to be aware of before you make any decisions.

When you break it down, there is no difference between buying a property with a friend or sibling and buying one with a partner.  A lenders primary concern is whether you are both able to repay the money you have borrowed rather than the relationship between you both.  Some of our clients have asked whether it is more difficult to find a mortgage if you are buying with a friend? The answer is no.  If you are buying with just one sibling or friend you would have the same choice of mortgages as a couple would.  You wouldn’t be expected to pay any extra fees or interest than you would if you were buying with a partner. 

If buying with two or more people this becomes a little more complex, but if you are fully informed and prepared it is still possible. Before you go ahead it is imperative to do your homework and fully understand what is involved.

If you are thinking about buying a property with friends or a sibling, you may want to read some of the advantages and disadvantages we have chosen to highlight below:

Advantages

• Combining your deposits will enable you to apply for a far larger mortgage than if you were buying alone

• Sharing a mortgage with a friend or sibling could save you money on renting and long term could set you up financially for when you are ready to buy alone

• You can share the cost of any fees and mortgage payments

• Any property maintenance costs and household bills can be shared

Disadvantages

• If one party defaults on a payment you will all be held responsible to cover the shortfall

• Your credit rating could be affected by whoever you share the mortgage with

• Should you or your partners circumstances chance there maybe disagreements about how costs should be paid

Something to consider: A Joint Tenancy or A Tenancy in Common?

When considering purchasing a property with another person, unmarried couples have a choice between registering the land as ‘Joint Tenants’ or ‘ Tenants in Common’.

Joint Tenants:
• Have equal rights to the property
• Can claim equal shares if any profit is made should the property be sold
• Will automatically inherit the property should the other partner dies

Tenants in Common:
• Each can own a different share in the property
• Do not automatically inherit the property should the other partner die
• Can choose who to leave their share of the property to should they die

With careful planning and sensible precautions, most problems can be avoided.  See our hints and tips below to ensure a smooth process and a happy household

• Only buy with people that you know and trust. This is very important, consider the consequences should your partner default

• This one may seem silly, but before you buy decide on when you intend to sell. You may have completely different ideas on when you want to sell the property and this could cause disagreements later on.

• Decide on how you will sell the property and how the profit will be shared.

• Before you proceed with an application, insist all parties are open and honest about their finances. All financial details, including other debts, should be disclosed.  Should your intended partner have other debts, missed payments or defaults, these factors could affect the mortgage application and potentially increase your payments

• Put together an inventory of household contents and specific details of who owns what

• Establish household rules such as who can stay over, pets, noise, smoking, decoration

• Consider setting up a joint account to pay mortgage costs and household bills. Agree on how much each partner is to contribute to bills.

Finally, to guard against potential problems and for peace of mind, consider setting up a Cohabitation Agreement.  These can be set up by a solicitor.  These agreements should at the very least cover the following:

• What share of the property each partner owns
• The amounts of money each party has invested in the property
• What should happen in the event of death
• How and when the property will be sold, valued and who will deal with the process
• Dispute procedures
• How maintenance costs, mortgage costs and bills will be shared
• Whether rooms can be rented and who selects potential tenants

Taking into account all the potential stumbling blocks, for many people buying a property with a friend or sibling is a great way of taking that first step on the property ladder.  For some, pooling monies to get a mortgage is the only way they could afford it.  Whether you decide it is a good option for you or not, our experienced advisers are here to guide you every step of the way. 

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0800 310 1919

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