What is Buying a house with a friend(co-buying)?🔔
A survey by Furniture Choice revealed that 38% of people would consider buying a home with friends.
Buying a house with a friend(co-buying) as it sounds is when two or more people buy a home together. Buying a house with a friend(co-buying) could significantly cut down the time to homeownership for you and your co-buyer.
This means you may be able to get on the property ladder quicker and with less money as the mortgage lender will consider the income and mortgage deposits you both have.
When buying a house with a friend(co-buying) you may all put a contribution towards the mortgage deposit, house bills and towards the monthly mortgage repayment.
In most cases, you will put together and agree on a pre-purchase agreement which outlines your obligations to each other. For example, you might want to decide who should get credit for the mortgage deposit if the relationship ceases and reflect in the title documents the share of ownership or contribution.
This makes things significantly easier when you are selling the house as there will be no disputes. The mortgage lender will need to be made aware of this and give their consent to any sub-agreement you may have which has an implication on the mortgage.
The mortgage lender will most likely hold all co-buyers jointly responsible for the mortgage and can come for either or all of you. You should consider this in a scenario one of you passes away. The pre-purchase agreement or template should cover all of these scenarios.
The pre-purchase agreement may also contain information such as who gifted the mortgage deposit or who loaned the mortgage deposit to who and in this case who owns that share of the property which the mortgage deposit bought. The pre-purchase agreement should then contain how much needs to be paid back, to who and when. Will the mortgage deposit loan be a second charge on the house?
If this is the case you may find that a lot of mortgage lenders will not lend to you as they prefer to have a first charge mortgage which cannot be challenged by any third party.
Buying a house with a friend(co-buying) is either done as a joint tenancy or as Tenancy in common.
Joint tenancy is when you are both jointly liable for the mortgage and both own equal shares in the house. This means you will need each other’s permissions to sell the house and you will share the proceeds equally. If one of you dies, their share of the house will also go to the other owner.
A tenancy in common will likely be a preferred method for most co-buyers as it allows either party to sell their shares of the house at any time or leave it in a will to their loved ones.
A tenancy in common will also allow the co-buyers to enter into a declaration of trust agreement where they could go into more specifics on a case by case basis.
Pros of Buying a house with a friend(co-buying) a house🔥
Buying a house with a friend(co-buying) will allow you to own a bigger and better home..which are usually the more expensive homes.
Buying a house with a friend(co-buying) will cut down your timeline to the property ladder
Buying a house with a friend(co-buying) can be done with mortgage schemes such as the shared ownership scheme, this means you don’t even have to buy the whole home, just 25-75% at first then you can take on a staircase mortgage and buy the rest of the home in different stages.
If you buy your house without a government scheme, you will be able to rent it out or sell it without any restrictions.
Buying a house with a friend(co-buying) will allow you to get an investment house easier.
Buying a house with a friend(co-buying) will allow you to benefit from any price rises after you have bought the home.
Cons of Buying a house with a friend(co-buying) a house🏛
A lot of issues can come up with buying a house with a friend but these are people issues rather than issues borne out of the process.
Issues such as being jointly liable for the mortgage. This means both parties can be chased up even if one of you misses out on their share of the mortgage repayment. This will then reflect badly on both your credit scores.
Although most issues can be rectified with a pre-purchase agreement, a deed of trust or co-habitation agreement.
The best way to avoid any issues with buying a house with a friend(co-buying) is to discuss your expectations beforehand and get legal advice on how to proceed.
You can find a co-buyer by joining our homebae network and meet them at our homebae events to assess them properly.
some of the issues that can come up when buying a house with a friend(co-buying)
What happens if one person loses their job and the other person is forced to keep up monthly repayments. What happens after?
What happens if one person dies? What happens to their share in the home?
What happens if one person wants to sell their shares in the home? Who decides if to sell and who decides at what price?
What happens if one person travels for a sustained period of time, should they still make their regular bill and mortgage payments?
What are the social rules of the house?
What are the co-habitable parts of the house?
What happens if one person wants to sublet their room or their part of the house?
Can you buy a house with a friend with bad credit?
You may indeed be able to buy a house with a friend even with bad credit. There are mortgage lenders who lend to those with bad credit but you may face stricter requirements such as bigger mortgage deposits or even face having higher APRs.
A bad credit mortgage broker will be able to assess your options and provides suitable recommendations for you.
If you are bankrupt then you may need to wait for 12 months after you have been discharged from being bankrupt to buy a house with a friend.
Bad credit may include:
Alternatives to Buying a house with a friend(co-buying)
You may not necessarily need to buy a house with a friend you may indeed decide to simply use one of the first time home buyer government schemes which may reduce the total cost of the property or increase your mortgage deposit.
Government schemes help you reduce the amount of mortgage deposit you may need to put down, reduce the price of the property or create a structure that increases your mortgage affordability much sooner than it would have been.
Some of these include first-time buyer government schemes whilst others in this list are accessible to you even if you are not a first-time buyer.
Government schemes are not available to you if you are getting a buy to let mortgage.
The Government schemes include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire– similar to the above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
You may also be able to use one of the 100% LTV mortgages which are a type of family deposit mortgage offered by mortgage lenders.
These are also known as a family springboard mortgage, they include mortgages from lenders such as the Barclays family springboard mortgage, the lloyds lend a hand mortgage or the post office family link mortgage.
What mortgage do you need to buy a house with a friend?
You will need a joint mortgage when considering buying a house with a friend. You may want to speak to a mortgage broker who may be best placed to advise you.
Use a mortgage broker for your mortgage in principle
You may want to use an independent mortgage broker to help you get a mortgage on your new home.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.