Buying a house with a friend - pitfalls?

ScrimpingMum_2

I have discovered a way of buying a house, which would be fantastic, but I thought I would ask you clever people if you can foresee any pitfalls.

I earn about £23000 a year, and I get £6000 a year child maintenance and a little bit of working/child tax credits (not sure how much yet as this is being recalculated because I just had promotion and a wage rise, maybe about £1500).

I want to buy a house for around the £170k mark. Obviously I cannot afford to do this by myself so a friend has suggested that he buy half and that I rent his half from him plus I get a mortgage on my half only. I have £20K as a deposit on my half, so I will only need to take out a £65K mortgage.

I will pay my friend the going rate in rent, around £350 a month, which is more than he is earning in interest on his money at present, plus we hope that the value of the house will appreciate over time. I am hoping I can get a mortgage deal that will cost me about the same per month. As I currently pay £750 in rent each month I know I can afford this, as long as there aren't major interest rate hikes.

I know we will have to see a solicitor to take out this joint mortgage and make some kind of agreement about what would happen if he wanted to sell his house in the future. He doesn't anticipate doing this as he will inherit quite a bit of money in the next few years, but you never know.

So....it all seems fairly straightforward, but am I missing any obvious pitfalls? Possible problems I can see:

1. He might need his money in the future and force me to sell. Then I would have to move and rent again. This would certainly be a pain, but I have just been told by my landlord that I have to move out this year as he wants to move back in. This is a major problem with renting!!
2. If I were to lose my job, become ill, etc, and not be able to pay my mortgage, would I jeopardise his investment? I have read Martin's guide to mortgage payment protection so might consider that.
3. If the interest rates rose a lot I would have to find this extra and still pay him rent - but this would be the same if I owned the house outright. I am thinking of trying to get the best fixed term deal as this stability would give me confidence and help me budget.
4. We would have to come to some agreement on maintenance costs - although he is a bit of a handyman so I think I might save quite a bit here because he would do most maintenance type stuff.
5. I am currently considered single - would this stop me being single, even though he won't be living with me? I get more WTC because I am a single mum and although I won't get so much now every little helps.


So many questions! The idea of owning my own house again fills me with joy. My house - I can decorate it as I want, invest in it, I don't have to put up with trimonthly landlords inspections and won't be worried about the landlord deciding to sell it from under me or move back in. But it all seems a bit easy.

I would be really grateful for any sensible advice, thoughts, etc you many have on all of this.

Thanks!

CloudCuckooLand

A million pitfalls. Seriously. Don't do it.

Several threads every month, detail the complicated, acrimonious, unaffordable breakdown of various "joint" arrangements...if you cannot afford it on a single basis, you cannot afford it when the joint arrangement falls flat.

You talk of the house value appreciating. But there is no guarantee of that. House prices are about £5k down since August, on average...

Suppose you meet someone, how will you extricate yourself from this arrangement?
Loss of benefits. Having a financial tie to someone with that sort of cash.
When the kids have grown up and WTC etc has stopped, how will you survive?
What happens if he dies? Who does the house pass to..?
What happends if you die, and your children are not of legal age? Where do they end up?

https://forums.moneysavingexpert.com/discussion/comment/38396556#Comment_38396556

"most of which I invested and is tied up for 2 years, so I would be looking to buy after then" - don't incur charges to unlock your cash.

17 years until retirement; so repayment mortgage of that length, £65k is £480 a month. Plus the "rent" of £350 = £830. Can you afford that, and the utilities and upkeep of the place?

Loss of interest on the £20k.
Loss of the £20k, if house prices continue to fall, and the arrangement has to cease when you are close to negative equity...

etc etc

alexlyne

This friend of yours sounds like a nice chap who genuinely wants to help (well hopefully I'm right here). If you value this friendship then best not to have a business relationship together (which is what this would be). Unless you marry him and he moves in too!

ScrimpingMum_2

You are a good detective, CloudCuckooLand, finding my other thread!!

As you can see I have just got a big promotion which is why it all seems possible. I am seeing my financial advisor next week - I was aiming for a 20 year mortgage since I won't retire it seems until I am 67.

You raise some good points though. I know house prices won't go up in the short term, but surely they will eventually?

I probably could afford £800 plus now, but not when the kids all leave home and I don't get their maintenance, so I do need to look at the future. (although they do cost a bit to keep...)

I need to think some more. But I would so love not to be in rented. Every time I move it costs me a fortune in fees and removal men and it is hard to find suitable rental properties in my area. You can see why I might be willing to take a chance on this, but I don't want to be stupid.

I have already met someone...the friend who is lending me the money. He doesn't want to move in though as I have 3 teenage girls and I find them hard enough to live with, but I suppose it is a future possibility. If he did I wouldn't have to pay him the rent!!!! That probably makes it all the more fraught with problems, but he says he would like to keep it going as a business arrangement whatever happens between us.

Thanks for your advice. I will research a bit more.

Thrugelmir

The biggest pitfall. Is currently your aims. You view the house as your home, your friend as an investment. The 2 aren't compatible.

You won't be able to obtain a mortgage on your half only. He'll be on the mortgage as well.

From both parties perspective extracting themselves from an arrangement like this can be fraught with difficulties. Particularly if either wishes to be unco-operative and onbstructive.

ScrimpingMum_2

Would my friend be on the mortgage even if he didn't have to pay any of it? His investment will be half of the total cost of the house and mine will be the other half. I will only need to borrow about £65K.

Going to see my trusty independent mortgage advisor tomorrow so I will see what he says.

I have known this friend for many years andwe trust each other. I know relationships break down and circumstances change, but I am pretty sure neither of us will make life difficult for the other deliberately. So fingers crossed it may work out

Thanks for the advice.

getmore4less

I think a joint venture is going to have to many issues

What about he buys a place for you to rent.

Much easier to undo you move.

And if the relationship develops.......