Buying a house on your own in the current climate is beyond the reach of many individuals. It’s no surprise therefore that the past few years have seen significant increases in the number of people choosing to buy property with friends, loved ones or even acquaintances.
Although offering many benefits – including allowing all parties involved to take a step onto the property ladder – purchasing a property in this way can also have its downsides.
Here, Claire Egerton looks at the growing trend for co-buying a house and provides practical advice and tips for anyone considering this type of purchase.
Know your numbers
Although in an ideal world, the amount that each person is able to contribute to a deposit would be equal, everyone’s circumstances are different and therefore, it can often be that deposits are unequal. At the outset, it will need to be formerly recorded what proportion of the property each deposit amounts to, and how you would therefore split the proceeds if one person decides to sell. It is often advised for cohabitees or co-owners to have a ‘declaration of trust’ drawn up by a solicitor at the point of purchase to formerly document how the property is owned.
Have a plan in place for exit
Unlike buying a property with a long-term partner or spouse, a friend will be unlikely to take your feelings into consideration when making life decisions that may present themselves. Although the circumstances may suit them at the time of buying the property, things can and do quickly change. For example, they may start a relationship and want to purchase a house with their new partner down the line. Or they may get a new job, meaning the location of the property is no longer suitable. Rather than wait for a circumstance such as this to arise, it is worth having a discussion about what would happen if one of you wants ‘out’ at the outset. Ultimately, if one of the owners wants to sell but the others don’t, the only solution would have to be a ‘buy out’ from the remaining parties.
Be upfront about finances
Each and every person whose name is on the mortgage application is responsible for mortgage payments being met. As such, if one person fails to pay, the other owner(s) will be liable to cover the shortfall. This can quickly put strain on a relationship or friendship and may even jeopardise the ability to be able to afford other household bills.
It is often said that you only really get to know someone when you live with them – and this includes finding out whether someone has a sensible attitude to money or not. In order to cover any periods of financial hardship, such as losing a job or experiencing financial strain from other angles, it may be a sensible precaution for each party to agree to hold their own ‘rainy day fund’ so they always have enough available to cover their own mortgage payments.
Keep on top of paperwork
There is an ongoing need for admin associated with owning a house, with buildings and contents insurance and household bills being just two examples. Providers of such services will usually only speak to the account holder, so be sure that you each have your name registered on the account.
From an administrative perspective, it can be easier to hold a joint account which each co-owner pays a regular amount into. This can be the nominated bank account where all bill and mortgage payments come from.
For more information or to discuss purchasing a residential property with friends or as cohabitees, please contact us on 01457 761320.
