why is it a bad idea to get a joint mortgage with friends?

verytricky69

Its been playing on my mind as to why this is a bad idea (i need to get out more)

I have no intention of doing this as I am selling/buying with husband at the mo.

We have some friends that have talked about doing it- they want to get onto the housing ladder (snake!?). I can see it would cause probs if they get partners and want to sell up.

What are the other pitfalls? Are there any benefits?

tiggerjj

What happens if they fall out, want to move their boyfriends in, and the other dont agree, one gets relocated for work etc etc the list goes on and on

tux900

I got a mortgage with a friend and it worked out perfectly - at the time it was the only viable way for either of us to get a foot on the property ladder. A few years down the line, having done the house up and sold it on, the equity has allowed us to go our seperate ways (housewise) and we've never looked back.

However, it is not without risks. A joint mortgage brings with it joint and several liability hence all parties are equally liable for the whole loan. If anything happens to one party the other could well find themselves in deep water through no fault of their own.

Another issue relates to actual ownership of the property. 'Joint tenancy' makes each party effectively own all the properly hence if one dies the other(s) continue as sole owners (i.e. none is passed the deceased's estate). 'Tenants in common', which is usually more appropriate with 'non-romantic' partnerships means that each part owns a share (which can be equal or non-equal) of the property. With the latter route you must ensure that all parties have appropriate wills set up, if the ownership should pass to the other partner(s), as by default if one dies their ownership of the property will pass to their estate however the remaining partners are still liable for the entirety of the mortgage.

Life insurance against the death of the other patner(s) is advised in order to reduce/eliminate the additional burden that a death may occur.

Of course, that's just dying - we haven't touched on real-life issues such as financial problems, falling outs etc!

There are risks, but that's life. The key is to ensure that all possibilities are considered upfront and steps taken to decide now the options and desired outcomes that they would wish to occur. Profesionnal legal advice is an absolute necessity as there is far more to this than common sense, particularly if it is deemed necessary to create watertight effective contracts/agreements about how matters relating to the shared ownership are to be handled.

Mathew

London_Town

It's interesting to read the post from MJNewton who has clearly had a positive experience of this. I'm sure buying with friends must work out sometimes and it's nice to hear a story with a happy ending.

However, I still feel this way of buying is a risk too far. The way I see it, when you buy with a partner you normally have shared goals, plans or ambitions. But, as I and many others have learned, it can all still go wrong and leave you in a financial mess. With friends, the risks are amplified massively as you're not a "team" in the way a couple normally is.

tux900

Wise words, and I must say that I'd put money on there being more failure stories than success given the sheer amount of things that can go wrong! Take my story as nothing more than a single case of one that happened to work out!

Mathew

getmore4less

Fool proof exit plan is the key.

tabskitten

I think it depends on the individuals involved.

poppysarah

In a rising market it was less of a risk. The minute you can't guarantee a rise in value it'll lead to huge rows about money.

It's a stupid idea imo though. Cos even in a rising market getting equity doesn't help you that much as where you'll buy will have gone up too.

benerji

The guarantor does not receive statements or communications from the lender - therefore if the situation deteriorates, e.g. their son or daughter stops paying the mortgage - he/she will not know until their guarantee is called in.