Buying a house with a friend can be an appealing option, particularly for those who want to get on the property ladder but may not have the financial means to do so alone. Perhaps you’ve been renting the property and have decided to join up to buy the house you rent. Whatever the background, co-ownership presents a unique set of financial and legal considerations that must be addressed. Let’s explore the key factors to consider when buying a house with a friend.
Agreeing on financial contributions and responsibilities
The first step in buying a house with a friend, or friends or family, is to establish a clear understanding of your respective financial contribution and responsibilities. This includes:
- The amount each of you will contribute towards the deposit, mortgage payments, and other upfront costs.
- How will you each cover ongoing expenses such as utilities and maintenance?
- Any plans for future financial contributions, such as paying off the mortgage early (mortgage redemption) or making improvements to the property
Having a clear and transparent conversation about finances from the outset can help prevent future misunderstandings and disputes.
Choosing the right mortgage
Selecting a mortgage type that suits both your needs and circumstances are essential. You would be well advised to speak to a mortgage adviser rather than trying to navigate this alone.
Joint mortgages are specifically designed for co-ownership and can be structured in various ways, such as:
Joint tenancy
This arrangement allows both parties to own an equal share of the property, with the right of survivorship. If one owner passes away, their share automatically passes to the surviving owner.
Tenancy in common
This option allows each party to own a specified share of the property, which can be different percentages. Upon the death of one owner, their share can be left to a beneficiary of their choosing.
It’s crucial to discuss your individual preferences and circumstances with a mortgage adviser. This will ensure that you choose the most appropriate mortgage structure for your both.
Put a co-ownership agreement in place
A co-ownership agreement is a legal document that outlines the rights and responsibilities of each party in the property purchase. This agreement should cover:
- The ownership structure (e.g., joint tenancy or tenancy in common)
- The percentage of ownership for each party
- How ongoing expenses and financial responsibilities will be divided
- The process for resolving disputes or making decisions about the property
- What happens if one party wants to sell their share or if the property is sold
Having a comprehensive co-ownership agreement in place can help prevent disputes and ensure that you’re both clear on your rights and responsibilities.
Protect your investment
When buying a house with a friend, it’s crucial to take steps to protect your investment. This may include:
- Taking out life insurance or income protection insurance. This will ensure that mortgage payments can be maintained in the event of death, illness, or job loss
- Having a will that specifies what happens to your share of the property in the event of your death
- Regularly reviewing and updating your co-ownership agreement to ensure that it remains relevant and accurate
By taking these steps, you can help safeguard your investment and ensure that your interests are protected.
Pros and cons of buying a house with a friend
Buying a house is a huge financial and long-term commitment, so it’s important to weigh things up.
Pros of buying a house with a friend
- Affordability: Pooling resources with a friend can make homeownership more accessible for those who may struggle to afford a property on their own. A joint purchase can increase your buying power and enable you to consider a larger or better-located property than you might be able to afford individually.
- Shared expenses: Co-owning a property means that you can share the financial responsibilities associated with homeownership, such as mortgage payments, maintenance costs, and utilities. This can help ease the financial burden and make homeownership more manageable.
- Building equity: You can both build equity in the home – beneficial in the long run, particularly if the property appreciates in value over time.
- Companionship: Buying a house with a friend can provide a sense of companionship and support, making the transition to homeownership more enjoyable and feel less isolating.
Cons of buying a house with a friend
- Potential for disagreements: Co-ownership can lead to disagreements or conflicts over financial matters, property decisions, or lifestyle choices. It’s essential to establish clear communication and a solid co-ownership agreement from the outset to minimise the risk of disputes.
- Less flexibility: When you own a property with someone else, your decisions regarding the property are no longer entirely your own. Selling, refinancing, or making significant changes to the property will require the agreement of both parties, which can limit your flexibility.
- Financial risks: If one of you is unable to meet your financial obligations, the other may become responsible for covering the shortfall. This can put a strain on the friendship and create financial difficulties for the person left to cover the costs.
- Challenges in exiting the arrangement: If one of you decides they want to sell their share of the property or move out, it can be challenging to navigate the process of buying out their share or finding a suitable replacement co-owner. This can lead to additional costs and complications.
Next steps
Before making a final decision you should both carefully consider these factors and establish a strong co-ownership agreement. You can then make an informed decision about whether buying a house with a friend is the right choice for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Last Updated: January 19th, 2024
