ftb deposit/buying with friend

smokeyroberts

Hi,

I am new to posting and to the world of house buying and would appreciate any advice.
My partner and I and a friend of ours would like to buy a property together. Separately we'd find it hard to get on the property ladder because of the amount of deposit we each have. The idea is that we will live in the house and he will stay in his rented flat, as we have a baby. We'll pay half the mortgage and half of his rent. I guess the first question is, does this seem reasonable?

The plan is that when the house has gained value (by market prices and improvements) we'll either sell and go separate ways or we'll buy him out. The proportion of money each party has put in as deposit will obviously affect the proportion of the property they own (my partner and I being one party and our friend the other). I realise that we will need a solicitor to draw up these kind of terms for us. Any ideas of the costs of this?

The final point is about the deposit. Our friend has been given money by his family, we are not so lucky. Obviously the higher deposit we can raise the better mortgage deal we will get. Is it wise to accept an offer from my partners credit card company to make a cash transfer to his account at a fee of 4% interest free for a year? it would double our savings (currently 5k). and give the 3 of us about 20% deposit in the price range we are looking.

As a final note, my partner and friend are going to get the mortgage jointly as I am on maternity leave and have the lowest income. My partners share of the house will be then split with me legally by solicitor. Have also been advised that our friend should say he will be living in the house otherwise the mortgage will be affected? Any ideas/comments on this?

Thanks in advance for any replies!

stringsmk2

Who pays the other half of the mortgage, I assume the friend does in what you are stating, but surely that makes no sense for him to do that?

With only 5k savings, it does suggest that you can not afford to buy especially if you are using a CC to double the deposit. I am not sure what your budget is but you'll need at least 2k just to move in, such as solicitors fees, stamp duty? and other costs.

Have you spoken to a solictor about spliting the the half share, because from what I can understand, it is what is on the title / deed that states who owns the place, not a legal document drawn up. Aside from that, it makes no difference if you are not working, you are in defacto relationship with your partner so there is no reason why the title can not be split three ways.

As much as you dont want to hear, just wait and save more money up as you can not afford it. I pesonally cant see what benefit your friend is getting by going in with you and I certainly would rely on captial gain for the time being.

There are many things to consider as well as the above, but it sounds like a very bad idea and I am sure you'll get similar replies to mine.

poppysarah

Wait til you're back at work.
Keep saving.
Reassess.

If you can't afford a mortgage on your own then this means you can't afford a mortgage on your own.

poppysarah

smokeyroberts wrote: »

Hi,
My partners share of the house will be then split with me legally by solicitor. Have also been advised that our friend should say he will be living in the house otherwise the mortgage will be affected? Any ideas/comments on this?

Thanks in advance for any replies!

Do you want to live a lie?

hazyjo

So you pay half the mortgage and half your friend's rent, as does your friend. You get to live in the property while your friend lives elsewhere in a rental. Who pays for the upkeep of the house? What if the roof needs replacing in 5 years' time? What if it's in negative equity and one of the three of you has to sell up/loses their job? What if one of you decides not to pay their percentage of the mortgage... would the others be able to afford it? Probably not from what you're saying or you wouldn't all be wanting to go in together.

Bit concerned about "when the house has gained value when the house has gained value" - considering we're in a falling market, there aren't really guarantees of anything making money. I just sold my house for the exact price I paid in 2006 - and the price is still falling. And that certainly doesn't include all the interest I've paid on borrowing that money and the money I've paid to EAs, solicitors, mortgage company, etc. Okay, so some of what I've borrowed has now been paid back, but hardly enough to call it a profit. I'm effectively still out of pocket if you're looking at it through investors' eyes.

Lastly, I agree with the others. What on earth has your friend got to gain? Why wouldn't he just rent?

Can foresee nowt but problems - sorry.

Jx

ViolaLass

The bit I don't understand is why you would pay half of your friend's rent. As I see it, the point is that party A (you and partner) fund and own half the house and party B (the friend) funds and owns the other half, presumably because you don't have enough of a deposit to buy just with your partner.

But why are you paying half his rent? You would each be paying for and getting half the equity in the house. By paying his rent, you are cancelling out the payment he makes on the house, so he effectively gets his half of the house free (assuming the rent is similar to the mortgage). If so, why not just borrow the deposit money off him and either pay him a bit each month or pay him when you sell (with a pro rata extra amount if you make a profit).

Thing is, there are so many other problems here. The banks are unlikely to like you using a credit card to up your deposit. And what will you do for fees etc? What if the friend needs to sell or can't afford the mortgage any more? Who will pay for the upkeep of the house, will you split it? What if you fall out?

CloudCuckooLand

Really bad idea.

Simples.

smokeyroberts

Hi,

thanks for all your replies - although the wind has been taken out of my sails! What our friend gets out of the deal is that he gets onto the property ladder and will own half a decent house which he is hoping to then make a profit on. The reason we were thinking of paying half of his rent is it seemed the fairest way and we would effectively be paying rent to him for his half of the house iyswim. His rent is really cheap (about half of what mortgage repayments would be) and he wants to stay in his flat. As far as upkeep was concerned I imagined we would split all costs ie if we needed a new roof.

Is it really a daft idea? If there is no profit to be made in buying a house when prices are low like now then is it even worth us trying to get on the ladder seperately?

Just to clarify, although we only have 5k at the mo our friend has 20k plus, so together we would have a good sized deposit. Our friend is not willing to buy a cheap house on his own (ie what he could afford with his deposit) and live in it because he likes the area he lives in and is too much of a snob to move to a more downmarket area himself!
Thanks again.

sonastin

Now isn't the time to be "getting on the housing ladder" because most pundits and house price indicators are predicting that prices are still falling. The market is very strange at the moment but it is unlikely that prices are going to rise any time soon - they're either gonna hover around this point or go down from here.

Rather than getting your finances tangled up with you friend and putting your whole friendship at risk, you would be better off saving as hard as you can. If prices do start going back up, they are unlikely to rise in the crazy way they did a few years ago, but if they did then that would be the time to think about this sort of plan.

At the moment you would be putting a lot at stake and it is unlikely that your friend would get anythign from it. You might get a nice house out of it, but it might cost you a good friend.

ViolaLass

OK, your explanation has clarified several points so thank you.

What do you plan to do if you fall out with your friend? Or if you and partner want to sell but he doesn't or vice versa? What if one of your can't afford the mortgage payments any more? (this is more important for you as you would be living there).

smokeyroberts

Thanks Sonastin, I appreciate your advice. As I'm sure you realise we are all new to this and have no idea about the housing market and what it may do. I will show this thread to my friend and see where we go from there. As someone suggested it may be a better option for our friend to loan us his money and get a guaranteed return on it, and we would get a family home. Again could all end in tears though I suppose :-(