As property prices rise faster than salaries, in the midst of a cost of living crisis, property ownership feels like a long-away dream rather than a possible reality for many these days
As property prices rocket and owning a home feels out of reach for many, some are turning to their friends to co-buy their first home. MoneyMagpie Editor and financial expert Vicky Parry takes a look at the pros and cons of buying a house with friends.
As property prices rise faster than salaries, in the midst of a cost of living crisis, property ownership feels like a long-away dream rather than a possible reality for many these days.
However, with some mortgage lenders offering mortgages that allow up to four people on the loan agreement, buying with friends is more of a possibility than ever before. But it comes with risks, too!
Con: Your credit scores become linked
It’s very important to realise that once you apply for a joint mortgage with someone else, you become part of their credit history and vice versa. This can mean your score drops if they default on their share of the mortgage.
Sharing credit scores and information before you apply for anything is absolutely vital. You must have a clear financial picture of everyone’s circumstances before you agree to buy a house together. Someone with a very bad credit score, for example, could damage your chances of getting a mortgage – and that ‘ding’ on your record of a refused mortgage application then impacts your own score further.
Pro: You share household bills together
Moving house is expensive – solicitors, surveyors, paperwork, renovations, new furniture… the list goes on. And then you’ll have day-to-day bills to worry about, too!
Sharing with friends will reduce costs overall, as the moving costs can be equally split amongst up to four of you buying the property. When you live there, daily bills can also be shared – while some will be higher overall such as energy bills, sharing will reduce how much you pay each compared to if you lived alone. Fixed price bills become a lot cheaper too – sharing broadband, Council Tax, grounds fees, and even streaming and subscription costs will hugely reduce your individual expenses.
Con: You’re jointly responsible for the mortgage
If someone doesn’t pay their share of the mortgage, the others are responsible for it. Otherwise, they all will be considered to default, even if they pay their set share.
Everyone goes into an arrangement like this with good intentions. But if you buy a house with a couple, for example, and they split up – that can get messy. Make sure you trust everyone you’re buying a house with implicitly that they will always prioritise paying the mortgage, whatever their circumstances are.
Extra Pro: You might not need a mortgage
Depending on where you live, want to buy, and your deposit savings, you might not actually need a mortgage (or a very small one).
If all four of you have an average deposit of £50,000 saved, that’s £200,000 in the house-buying bank. In some areas, that’s enough to buy a house – and where it’s not quite enough, it will certainly knock a huge amount off your mortgage term and costs. Borrowing an extra £100,000 between four of you means you’re essentially borrowing £25,000 each (plus interest), which could be paid off in five years or less.
Pro: You own a specific share
When buying a house with friends, make sure you buy as Tenants in Common rather than Joints Tenants. This will ensure you own a proportionate share based on how much of a deposit you paid and your monthly contribution to the mortgage.
Tenants in Common provides you with some protections. If someone wants out of the property, for example, they can’t just sell it from underneath you. It also protects your initial and ongoing investment, so there are no arguments about who gets what when the property is eventually sold.
Tenants in Common also provides protection for your estate when you die – and while nobody wants to think about that, especially if they’re young, it’s important to consider. If you’re listed as Joint Tenants, your share is subsumed into the other tenants’ shares. So, if you all own 25% and one of you dies, the remaining three own 33.33%. But Tenants in Common ensures your estate still owns 25% – meaning you can choose who to leave your share to in your will.
Con: The future can change unexpectedly
Whether it’s something as drastic as someone dying, or something as joyous as one of the joint owners becoming pregnant, the future has loads of unexpected bumps in the road. This can impact your long-term plans with the property. For example, if you’re suddenly going to have a new baby in the house, many people won’t be happy with that as they want to only live with adults.
Being tied into the property can then cause difficulties if someone wants to move out. Or, if someone loses their job and can’t pay their share of the mortgage. It’s important to talk through different scenarios with your friends to see how you’d deal with them, before you think about looking for houses to buy together.
Make sure you have a written agreement between you about how things will be managed, too – this might seem excessive, but it can help avoid friendship-dismantling arguments in the future.
Pro: You have a built-in support network
Possibly the biggest benefit about owning property with your friends is this: you would likely have been renting together anyway, but now you can make your way to independent property ownership. And your monthly mortgage payment split four ways is likely smaller than your monthly rent together!
More than that, though, is that you have your support network with you. Living with friends into middle life is increasingly common, sometimes for financial reasons but also for emotional ones. Having a built-in family around you can help when times are tough – or when they’re great! Many people worry about becoming home owners because it means they will lose the feeling they get living with good friends – so buying together is the best of both worlds.
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