Buying property with friends

Property can be expensive, but you may not have to shoulder the entire mortgage. Depending on your circumstances, you could consider purchasing a property with one or more friends.

Here are some things you may want to think about when buying a property with other people:

Splitting the cost of the property bills

Will you and your friend, or friends, be putting in equal amounts towards the deposit and mortgage repayments? If not, you may want to agree to split proceeds on the potential future sale of the property, depending on how much you’ve each put in. You can get a solicitor to draw up an agreement for you, and make sure that it’s recorded in the Land Register. A Declaration of Trust will record how you’ve agreed to split everything, from ownership to bills.

Which is better – joint tenancy or tenancy in common?

There are different types of joint ownership. Joint tenants have to act together in a legal sense. You can’t act based on your own share of the property – for example, you can’t sell your part of the property; all joint tenants would have to agree to sell the home. If you’re purchasing the property as “tenants in common”, you don’t necessarily have to have equal ownership of it. As a further example, this would mean that you can sell your shares regardless of what your co-owners decide to do with theirs.

Shared Ownership

This is when you buy a ‘share’ of your property if you can’t afford to buy your home outright and pay 100% of the mortgage. You can buy a share between 25% and 75% of your home’s value, and you’ll pay rent on the remaining share. It’s possible to buy a larger share in your home if you want to; this is something to think about if your home increases in value.

You’ll need to pay a deposit of between 5% - 10% of the value of your share of the property (the minimum share is normally 25%). You’ll also need approximately £5,000 to cover admin costs and estate agent fees.

You will be eligible for Shared Ownership if you and your friends earn £80,000 a year or less and you live outside London (this figure jumps to £90,000 a year if you live in London)

Things to think about before you buy a home with friends

Open a joint bank account

You may want to open a joint bank account for mortgage repayments. It can also help to pay for shared expenses through this account.

Compare mortgage deals

Shop around for the best deals and rates that you can get, based on your circumstances. Typically, the better your credit rating, the likelier you’ll be to get a better deal. This will apply to everyone who will share ownership in the property.

Check your credit reports

If you apply for a mortgage and get rejected, this will show up on your credit history. You and your friend or friends may want to check your Equifax Credit Report & Score (which is free for the first 30 days then £14.95 monthly) to get a sense of your credit history, as well as an indication of how creditworthy a potential lender may find you. This way, if there are any glaring issues, you may be able to sort them out and improve your credit score before applying for the mortgage.

Organise your paperwork

Buying a property can come with a lot of paperwork. Being organised will help to keep records to do with owning your home in order, and can help to ease any related confusion that may crop up.

Keep an inventory

Who owns the TV or the sofa? Keeping a list of who bought what will help you to split up possessions if you decide to sell the property in the future.