Buying a House With a Friend
Buying a home with a friend or a partner is a great way to get on the property ladder. You will need to get a joint mortgage and decide which is the best type of ownership for you. The two types of joint ownership are known as Joint Tenants or Tenants In Common.
Compare My Move work with property experts to ensure we bring you the latest and most insightful articles to guide you through the buying a house process. To help you make an informed decision, this guide will explain everything you need to know about buying a house with a friend.
What Is Joint Ownership Of Property?
According to data from The Office of National Statistics, the number of people living alone in the UK has increased by a fifth over the last 20 years. However, households containing multiple families were the fastest-growing type of household over the last two decades. One of the most common types of households in 2019 were married or civil partner couples, proving that many buyers are or have considered buying a home with their partner.
If you’re planning on buying a house with a friend or partner, you must first decide which type of joint ownership is right for you. The two types of joint ownership are Joint Tenancy and Tenants In Common and you’ll have to register the type of ownership with the Land Registry.
The type of ownership that you decide will determine what happens with the property if one of the owners dies or your relationship comes to an end. If anything changes in your relationship or friendship, you can transfer to a different type of property ownership. It’s worth exploring both options to work out which will be best for you. You should also carefully consider which is the best way to buy a house for you and your situation. For more information, read our jargon buster for first-time buyers so you're fully clued up on home buying terms.
What is Joint Tenancy?
Joint Tenancy is a type of property ownership where both owners have a 100% stake in the property, meaning they both equally own the property. Often referred to as ‘beneficial joint tenants’, Joint Tenancy will mean the property will go to the other co-owner if one person was to die.
Joint Tenancy is a common choice among couples, as you don’t have to worry about who has more of a share. When you sell a joint tenanted property, both of you will be entitled to an equal split of the sale proceeds, regardless of which one contributed more towards the house deposit or monthly mortgage payments.
If you decide to separate and sell, you both automatically get a 50% share of the property. If the separation is difficult, and one co-owner believes they contribute more financially, they can take the case to court which would determine a fair split.
What is Tenancy In Common?
If you’re a couple or two friends buying a house using ‘tenants in common ownership’, then all co-owners will hold the equity in shares of the property. It’s normally assumed that tenants in common will each own 50% of the property, but it’s possible to arrange unequal shares via a deed of trust.
If one owner made a larger contribution to the house deposit, then they might want to register a higher proportion of the property’s value, such as a 25%-75% split. This can be changed over time to reflect both owners’ contributions if the other owner started earning more in a new job.
When you sell a property with ‘tenants in common ownership’, each owner will know how much they will get from the sale price. If one tenant dies, their share of the property can be left to anyone, with no obligation to leave it to the other co-owner.
What is the Difference Between a Joint Tenancy and a Tenancy in Common?
Both Joint Tenancy and Tenancy In Common have pros and cons, but there are some important differences between the type of ownership you should familiarise yourself with.
|FAQ||Joint Tenants||Tenants in Common|
Who owns more of the property?
You both own 100% of the property.
You both own a share of the property. These can be equal or they can be different shares.
Who is this more suited to?
Couples usually use joint tenants for equal ownership.
Friends or relatives are more suited to a tenant in common ownership.
What happens if one owner dies?
The property automatically goes to the other owner if one dies.
The property doesn’t automatically go to the other owner if one dies.
Can I pass on my share of the property in my will?
How Many People Can Be On A Mortgage?
Buying a house with a friend or partner is an ideal option to share the costs involved in buying a house. If you’re buying a home with a friend, you will need to take out a joint mortgage. Typically, joint mortgages are taken out by two people, but up to four people are allowed to be on some mortgages.
Whilst some lenders will require all four members to be named on the title deeds, many lenders will only take into consideration the income of the two applicants with the highest salaries when considering how much mortgage you can afford to borrow.
Other lenders may require stricter rules such as the property being the main home for all four applicants, or all applicants being related to each other in some way, or that all applicants must provide a combined 20% deposit on the property.
Getting a joint mortgage can be a great way to share the costs involved with buying a house. However, it can come with some disadvantages too. Below we list the pros and cons of a joint mortgage.
You can borrow more money together.
Other applicants’ credit score could affect the process.
You’ll be able to put down a higher deposit.
It can become difficult if you were to argue or split up.
Monthly payments will be shared between other people.
It can be difficult if you want to sell and the other person doesn’t.
Who Can Get a Joint Mortgage?
Most people are eligible for a joint mortgage, but in the same way as a traditional mortgage, if someone you’re buying a house with has a poor credit score, they may be rejected.
If the usual financial criteria are being met, there are no restrictions on who you can take out a joint mortgage with - it doesn’t have to be just family members. You can get a joint mortgage with:
- Spouse or partner
- Parents or siblings
- Business partner
How To End A Joint Mortgage?
There may be many reasons you might want to get out of your joint mortgage. If you’re getting a divorce, splitting up with a partner or want to move out and buy your own home, it can seem daunting.
One of the easiest ways to end a joint mortgage is to sell the house after a divorce. The funds from the sale will be able to pay off the remaining mortgage.
Another option is to transfer equity. This means you will be transferring the ownership of the house to just one person.
Lastly, you could continue paying the mortgage until it’s all paid. This is common among divorced couples with children where one person would continue living in the house.
What Could Go Wrong When Buying a House with a Friend?
Like any process, buying property with a friend does come with risks and so it’s a decision that shouldn’t be taken lightly. It’s important that all parties involved are very open and honest about their personal situations and how they want the process to proceed. It’s advised you have a thorough discussion before starting the process so everyone knows the risks involved.
There are a number of disadvantages to buying a house with a friend, partner or family member, but many of them can be overcome with careful planning and preparation. A number of situations you need to prepare for could include:
- A change in your relationship
- A change of income
- Potential disputes over ownership
- A disagreement on who pays which bills
- One party looking to sell the property
It’s important to seek the help of the necessary professionals if you require further information. Whether it’s a mortgage broker, solicitor or estate agent, don’t be afraid to ask questions when buying a house if you’re still unsure how to continue.
The best way to prepare for any dispute or change in circumstances is to have an open and detailed discussion with the other buyers involved to ensure you’ve come to an agreement on any potential issues.
Tips for Buying Property With a Friend
If you and your friend have agreed to enter into joint ownership, then it’s important that you both thoroughly research your next steps and how you can help make the process as seamless as possible. To help you begin, here are a few of our top tips for buying a house with a friend or relative:
1. Be Open and Honest With Each Other
Before deciding whether you should buy a home with your friend or partner, you should take the time to have a thorough discussion and be honest about each other’s personal circumstances. You should only purchase property with someone you can trust and someone you know can afford the initial costs. Be upfront about your financial circumstances especially.
2. Get a Credit Report
One way to help reassure each other is by getting a credit report. Both of you should get your credit histories checked to ensure you can both afford the mortgage. If one of you has a bad credit score, your lender may not approve the joint mortgage. It’s better to be prepared and to start the process honestly.
3. Consider Renting
It can be very difficult living with someone else, especially if you’re used to living alone. Renting could be a good first step to ensure you can both cope with each other’s living arrangements and routines. It’s a temporary trial to ensure you’re ready for such a big commitment: purchasing a property. It will also prove whether there will be any financial issues as, if they are regularly late paying the rent, you know to question them further when appropriate.
4. Create a Declaration of Trust
A Declaration of Trust is a legal document declaring how everything will be shared in the property, including bills and legal fees. It typically costs £300-£350. If you’d find it reassuring to have the agreement in writing, speak to your solicitor or conveyancing solicitor for further advice.
5. Keep Copies of Any and All Documents
Whether it’s documents relating to the property purchase, utility bills or a document like a Declaration of Trust, it would be wise to keep copies of everything. This will make the future selling process much easier for you both, and will also be useful should the worse happen and there’s a dispute.
6. Discuss What Will Happen If One of You Should Reconsider
A vital discussion that you and your friend or partner must have is what will happen should one of you reconsider or walk away from the purchase. This could be one of you buying out the equity stake of the person leaving or perhaps selling their share of the property. If these options are not financially possible, you should discuss whether you would have to simply sell the property altogether. It’s advised to have a back-up plan and a way to continue should one of you reconsider.
7. Make an Inventory of Ownership
Before buying a house with your friend, you should create a written inventory stating the ownership of all shared items. If one person eventually moves out, this will reduce the risk of disputes concerning ownership. If you’ve bought a TV together, for example, you’ll have to discuss who that would belong to should you go your separate ways.
Alternatives to Joint Ownership
Joint ownership can come with added risks, meaning it may not be suitable for you and your personal situation. If you’re unsure whether joint ownership is right for you and your friend, we’ve listed a number of alternative ways to save for a new home.
Help to Buy
If you were able to open a Help to Buy ISA before applications closed in 2019, then you can use this to help pay for the deposit on your new home. However, if you failed to apply or are looking for alternative help, you should research the government’s Help to Buy Equity Loan scheme instead.
The shared equity scheme allows property buyers to pay a small deposit of around 5% or more, get an equity loan for a proportion of the property’s value and then take out a mortgage on the remaining purchase price.
If you don’t want to rely on a family member or friend, the shared ownership scheme allows you to own a share of the property without getting them involved. It is a government scheme that allows first-time buyers and families with a lower income to purchase a share of a property whilst paying rent on the rest. Additional shares can be purchased in the future through staircasing.
Continue Saving for the Deposit
Sometimes patience is key, and the best option is to simply wait. If you don’t think joint ownership is for you, one option is to continue saving for the deposit and to ensure you can afford the mortgage payments alone.
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Whether you’re buying a house with a friend, partner or sibling, or you’re buying one on your own, let Compare My Move do the hard work for you. We will compare the best conveyancers, surveyors and removal companies to help make your move stress-free.