Increasing numbers of first-time buyers are boosting their purchasing power by clubbing together with a friend or partner – but make sure you think carefully about the pros and cons first.Steep house prices, tight lending restrictions and the need for a large deposit mean that, for many people, especially if they don’t have any financial help from their family, buying a property alone is simply impossible.
According to research by estate agents Right Move, the number of people buying with a partner or friend is higher than ever. It says that the proportion of people buying on their own has fallen from 32.7% in the last three months of 2009, to 25.5% in the first three months of this year, while the number of people buying with a friend, partner or spouse has risen from 62.1% to 72.5% over the same period.
A spokesman for Right Move said: “Mortgage lending and the economic downturn mean that buying alone is becoming less viable. While lenders so far haven’t budged in finding solutions for first-time buyers, it is the buyers themselves that are adjusting to market conditions by coupling-up in their pursuit of home ownership.”
If you are going into a mortgage jointly, make sure you are both aware of your rights and obligations first – and what you will do if one of you wants out. Here are our top tips…
Be upfront financially
Before taking out a mortgage with someone else, you’ll both need to be upfront about your financial affairs. Ask your partner or friend to check their credit history as soon as you can as it could affect your plans together. For example, if they have a bad credit score due to missing payments in the past, this could result in a joint application being refused by a lender.
Try renting first
Buying a property with someone else is a huge commitment that should never be entered into unless you are completely confident that you can trust the person you are buying with.
Before buying a home, why not try renting with each other for at least six months first? This will give you a good idea as to whether you are compatible as housemates, and will also give you an insight into how the other person manages their finances. If they struggle to meet their rent payments, then you need to think very carefully about whether you should buy with them.
If one person doesn’t pay their share of the mortgage, or any other bills held in joint names, it is both applicants that will be chased for the debt. That means if one of you stops or is unable to pay their share of the mortgage, the other will somehow still have to keep up the payments or risk losing the roof over their head.
Work out what you can afford
Once you have decided to bite the bullet and buy a property together, work out your budget. Look at how much you can each contribute towards a deposit, and how much you are likely to be able to borrow.
Most lenders will let you borrow three times your joint income, so if you each earn £30,000, then you should be able to get a mortgage of £180,000, provided you have a big enough deposit. You should aim to put down a deposit of 25% of the property’s value if possible, as this will get you a much more competitive rate than if you only have a 10% deposit.
Longborough Building Society is currently offering a two year fixed rate deal at 3.55%, but only if you have a 20% deposit to put down. This deal comes with a £499 arrangement fee. But if you only have a 10% deposit to put down, then the best two-year fixed rate currently available is at a steep 5.45% from Santander. This deal has a £99 arrangement fee, but comes with a free basic valuation and £250 cashback.
Bear in mind that if you are buying with more than one person, then lenders will often allow up to four people on a mortgage application, but most of them will only factor in the top two incomes in their affordability assessment. David Hollingworth, of brokers London & Country Mortgages said: “There are a few providers who will factor in more than two incomes, including NatWest and Santander.”
Own a specific share
Once you have worked out how much you can afford to spend on a property, you will then need to think about how you will own the property. If you own your property as joint tenants, this means that it belongs to you and the other owner jointly. You can’t re-mortgage or sell the property without the agreement of the other owner.
If you own your property as tenants in common, however, it still means that it belongs to you and the other owner jointly, but also that you own a specific share of its value. You can give away, sell or mortgage your share, so most people buying together as friends opt for this route.
Discuss what will happen if one of you wants out
It’s essential to discuss what you will do if one of you wants out of the property. Mr Hollingworth said: “If one of you wants to move on, then the remaining person will effectively have to buy you out. That means they’ll need to buy out the equity stake of the person who is leaving and will also have to show the lender that they can afford to take on the mortgage on their own.”
If this isn’t going to be feasible, then your only option is for your friend or partner to sell their share to someone else, or for you to both agree to sell the property and split any proceeds.
It might sound morbid, but you should also think about what would happen if one of you dies. Unmarried couples are not recognised in law, so, even if you live with someone and have no other relatives, if they die without a will their assets will go to the state, rather than you.
A will ensures that your property passes to the people whom you wish to benefit on your death, so make sure you write one as soon as possible, especially if you aren’t married.
You can buy ‘do-it-yourself’ wills from stationers, or online, starting from as little as £10, although it is usually best and safest to do it professionally through a will-making service or your solicitor. Depending on how complicated your affairs are, drafting a will usually costs from between £50 and £150.