Mates Rates: The Pros & Cons of Buying with Friends
We’ve covered before how difficult it is for single people to get on the property ladder alone, thanks to the ever-increasing cost of houses and the rising percentage of our wages that we spend on rent.
It seems like all single people can do is give up avocado toast and save every penny they can towards a deposit, so buying with friends seems like the ideal solution, doesn’t it?
Younger generations are used to shared accommodation. From university house shares with pals, to finding a room in a house as a graduate, most people who live in the more expensive cities share their homes with many people. So if you and your mates are happy to share the cleaning rota and bills on a shared rental that pays someone else’s mortgage, why not chip in on your own?
This isn’t just a solution for single people either. The times they are a-changing and you may be part of a couple that isn’t ready to live together yet, but you still want to invest in property. Or you could be part of a couple that wants to team up with another couple to take that big step.
But is this really a good idea? Well, as with all things in life, there are pros and cons…
A larger deposit and a bigger mortgage
It goes without saying that this way you’ll get more financial bang for your buck. Pooling your resources means you will have more of a deposit, which is really where a lot of younger people these days struggle.
Your combined income will also result in a larger mortgage, so you’re much more likely to be able to afford to buy in the area you want or the size or standard of home you want. You can use our affordability calculator to see just how much you might be able to borrow.
The financial perks go further than just the purchase price of a property though. You’ll be able to spread the cost of furnishing and decorating your new pad too!
While you could splash out on a nicer home, buying with friends might make a fixer-upper look a lot less work.
Fixer-uppers are usually a little cheaper, to account for the money you’ll have to pour into the renovations and with more people involved in the purchase, it’s suddenly a much more digestible project. Many hands will make light work of the DIY jobs in the property and the cost of skilled renovations will be spread out.
When you do come to sell, you’re likely to make more of a profit because you’ve done so much work. So everyone’s a winner!
Mental health is high on the priority list for lots of people today – and with good reason! Over the years, our social groups have grown more disparate than ever and we think nothing of trekking across the city, or even the country, to see a mate.
Buying with friends, particularly as a single person, ensures you’re unlikely to struggle with loneliness, which is as bad for your health as smoking. Sharing the stress of your working day and having someone to spend time with does wonders for your mood.
There is also the added benefit of sharing the load when it comes to getting your mortgage. There’s a reason that buying a home is one of the most stressful things you can do and doing it alone can seem like a mountain to climb. Having someone – or multiple people – to share that responsibility with really takes a load off your shoulders.
But while there are a lot of benefits, we do have to acknowledge the downsides…
Change in plans
If you choose to buy alone, while it may be stressful, you at least know you can rely on yourself, safe in the knowledge that your future plans are entirely in your hands. Even when buying with a partner, if you’ve reached that level of commitment, you’re probably on the same page about the future!
But when you add more people into the mix, it all becomes a lot more complicated. Relationships can break down, forcing you into selling before you want to. Your co-owner might meet the love of their life and want to move on with them – or move them in (and what if you just can’t stand them?!).
Before you even call a mortgage advisor, have a frank conversation about what you’ll do in the event of a break up, a falling out or other change in circumstances, such as someone losing their job. Even if they aren’t your spouse or life partner, if you are joint mortgage holders, you are fully liable to make up any shortfall in the mortgage if they are unable to pay their share.
Additional legal steps
To protect all parties involved, it’s wise to take some extra legal steps that you wouldn’t take on your own and perhaps wouldn’t even take with a partner (though we would advise you do this with them too!).
Unmarried couples who live together often get a cohabitation agreement, but it would also be useful between friends. It lays out how the finances related to the property will be arranged while you’re living together, as well as setting out what will happen in the event of a split or death of one of the parties.
A deed of trust is also useful as it’s likely that someone in the group will be bringing more money to the deposit than others. The deed specifies how the property is held between joint owners and will head off any potential future arguments about how the profits from a sale should be divided. This goes for interiors too – if you’re all chipping in on large communal items like the sofas, be sure to decide now who’ll get to keep them!
While it’s probably not something you want to think about, you do need to consider what will happen in the event of you or your friend’s death. If you get a mortgage as ‘joint tenants’, your portion of the property will automatically go to your co-owner in the event of your death. If you would prefer a potential future partner or family member benefit, be sure that you are ‘tenants in common’ instead.
We’re an Appointed Representative of Mortgage Advice Bureau, so while this sounds complicated, we can definitely walk you through everything you need to consider, so definitely get in touch if you’re curious!
You really need to think about how the finances will work. Most couples have a joint account for household expenses and it makes sense to set this up among friends too. Again, it’s about seeing potential causes of conflict, like ensuring no one person is responsible for paying the bills and having to chase others for their share.
Buying with anyone, even a long term partner or spouse, is a risk as linking your finances to someone else can affect your credit score if they are not as good with money as you would hope. If you are buying with more than one friend, be aware that you are increasing that risk with every person that you add to the partnership.
Can you even get a mortgage?
Usually it’s a single person or a couple applying for a mortgage, so the majority of mortgages available are created with that traditional set up in mind, so no, not all lenders will be willing to lend to friends who have teamed up.
However, as this becomes a more popular option for people, mortgage lenders are getting wise to it and there are mortgages out there for you – including with major high street banks. Your options will be limited, so it may be at this point that you decide this isn’t quite the right step for you.
Ultimately, the risks are comparable to buying with a spouse, but heightened, so it’s up to you to judge if the risk is worth taking.
As an Appointed Representative of Mortgage Advice Bureau, we’re well placed to answer any questions you might have about the process of getting a mortgage, whether that’s with friends, a partner, or on your own. So get in touch today!