First Time buyer - Advise needed..

cushde

Hello all..

First off thank you for all the fantastic information that you guys have already given me! i have been unregistered for some time and just have been sat here reading your guys posts.

Ok, now to my questions.. (grab a coffee!)

I have made an arrangement with a friend of mine to get a mortgage. Which i think will benefit us both. I am currently earning on my own around 18k a year. My fiancee does not work as we have just had a child.

The proposal to my friend was that he comes up with the deposit for the house (8.5k), and i will make the monthly mortgage payments along with any work that will be done to the house. I will get to live there. Then after 6 years we sell the house and whatever profit is made after the 6 years is split between us at a 50/50 rate.

This will have made him some profit on his 8.5k and also leave me with a good deposit for a better home for myself and my family, and hopefully some to spare. (if all goes to plan!)

I have got an offer in principal for around 82k, and with the 8.5k from my friend brings me up to 91k to find a house with.

82.5k Mortgage
£443 per month at %6.45 interest only (little adverse credit in the past)
8.5k Friend

I am not sure how much all the fee`s will cost? My adviser said you should reserve around 2k for all of the fee`s (survey, solicitors etc..) but is there anything else i will need to think of?

Also what do you guys think of the arrangement? Right now after reading some posts some people are saying that house prices may fall?

We are currently renting our place and it just seems so silly to be throwing money away like this, instead of investing it into a house.

Any help would be much appreciated,
thanks in advance.

olly300

To find out how much solicitors fees cost search online for "conveyancing solicitors england" (if you are in England). Then to find out possible search fees put in a search for your local council. Search fees can go up to £280 as some councils see this as a money making exercise. To see if there are problems in the area before you make an offer put the property's postcode in http://www.homecheck.co.uk

RufusFrog_2

This seems ridiculously generous to your friend.

I have thought about doing this for a friend but did not expect to get more than my share, i.e. buying, say, 12% of the property, and getting 12% of the proceeds on resale. This will be 'fair' regardless of whether the prices go up or down. Your friend will be 'investing' in the property market in a direct way rather than through a fund. Also your solicitor will need to draw up a contract that not only confirms this but details how you will split the costs, e.g. he waives charging you rent on his portion in return to you paying for all the maintenance/council tax/estate agents fees on sale etc., the solicitor will charge extra on top of the normal conveyancing fee for this. Also your friend may be recommended to appoint his own solicitor to 'look after his interests'.

cushde

Thanks for the replys guys.

The whole reason for involveing my friend is that i was having trouble getting a deposit saved up as i have been obviously renting and with the new baby on the way its was hard to save some money.

Hes does get a better deal on his side when all is said and done after the 6 years, but it was the only thing i could think of to help both of us.

Cheers

CB1979_2

not being funny though, you're saying you'll pay for everything 100% with no contribution from him?

so you improve the place costing you £5k but it increases property value by £15k so he get's £7.5k for doing nothing and in real terms you only "make" £2.5k?!?!?!

if you want to for a 50/50 split, I'd suggest the route of, obviously an example

house purchase price £90k
house selling price £130k
"profit" - £40k
less:
any improvements - £11.5k (with cash going back to you)
his deposit -£8.5k (with cash going back to him)
= £20k PROFIT

then split that 50/50

=£10k each

otherwise it'd be £40k profit,
minus his deposit = £31.5k
split that 50/50 = £15.75k each, BUT he's up by £5.75k
but in real terms you're down £5.75k!

alternatively do it as a complete 50/50 regardless, so if house prices go up £10k would you both get £5k each, meaning he loses £3.5k?

what happens if house prices fall? will you still have to pay up his £8.5k leaving you making a loss?

Doozergirl

You're not even paying off the capital on the house! That is, in effect, renting from the mortgage company. You need some kind of investment vehicle to pay off the mortgage.

I'm going to blunt, this sounds entirely like you haven't done enough research and are taking this a little too light-heartedly. Buying a house is a massive undertaking, buying a house with someone else is a potential minefield.

In order for your friend to have proper legal claim over the property, he needs to have his name on the deeds, which means he has to have his name on the morrtgage too. That also means he is jointly responsible for the debt. Not something I'd want to do for many people, if any

It may take you time to save a 5 or 10% deposit but it means that anything you buy belongs to you. You have a future wife and a child to consider. You can't have the potential threat of your friend wanting to sell his share from under their feet because prices have risen/fallen. If prices did shoot up even further, when the time came to sell, you'd still be pricing yourself out the market by having paid no capital towards the house and only reaping 50% of any accrued profit.

Your fiancée will eventually go back to work and maybe then you will be able to start putting money aside, either that or maybe take a trip over to Moneysaving Old Style or even Debt Free Wannabe where people really learn how to cut down on their spending in order to reach a goal. once you've spent some time saving, you'll also be able to put time between you and the credit problems meaning a more sensible interest rate

Please don't do it, it sounds insane. The more I think about it, the worse it gets!

cushde

Thank you for the detailed replies.

CB1979
I think there will be certain things that we will need to add into the contract once it is drawn up with the solicitor, such as other costs which effect the house. You have pointed out some good numbers that i could use in the contract. My friend will not be placed on the deeds of the house. I had made that clear when i made the offer too him, and since we have known each other pretty much from childhood and he is a good family friend i see him as almost my brother.

I am hoping that the house WILL go up in value to at least 40-50k more than what we paid, but as i said a few people here seem to think house prices may begin to fall.. which with any "business" venture is a risk im willing to take. If the house does not make enough profit then i have also made it clear that there will be no return of the cash, which he is happy with.

Thank you for the fantastic advise i really really appreciate it.

Doozergirl
The original plans were too pay at the discounted rate of 6.45 for the first 2 years and then switch to cap/int with another company down the line, after paying the 2 years at fixed hopefully my credit rating would have gone up to the next threshold for my interest rate to come down a little. Thus in theory lowing the amount on the cap/interest with the new company. (if the interest rate does not fly threw the roof!) Right now apart from my child/car insurance i have no other payments going out each month.

Once we get the contract signed up with the solicitor hopefully i can add into it that he cannot "sell" his share of the house. He is bound to his side of the deal for the 6 year period.

The reason i am doing this is to better my chances of getting a better mortgage in the future and not wasting money on rent each month. I work around 50 hours a week to support my family, and at this present moment i think investing into a house rather than someone getting me to pay there mortgage for free (renting) is the best thing to do! I understand that the arrangement is a little one sided but i think for my future it will give me a push in the right direction. Here are the pros i have wrote down..

Own home - Able to do within reason any work you like on the house to customize it, as opposed to a rented property were everything needs to be ran by the owner.

Better Credit score/rating - After paying 6 years worth of mortgage, im thinking that my credit score would of gotten much better. Which in the long run after we sell the house will enable me to get a better rate of interest.

Profit - Hopefully ( with a little research in my area) we can raise around 40-50k in the 6 year period, thats around 20k each. Which gives me a good deposit towards my family home.


Experience - I am currently 25 and i think will be good for me. I will also get to work on the house myself and deal with everything that comes in the getting a mortgage package

My family is very important to me, and right now i think this is the best way to give us a step a little later in life.

Thank you for the consideration and posts. I owe you guys a pint!

Doozergirl

cushde wrote:

Profit - Hopefully ( with a little research in my area) we can raise around 40-50k in the 6 year period, thats around 20k each. Which gives me a good deposit towards my family home.

This is where you are falling down seriously. You can't even guess at whether prices will rise or fall, let alone project the growth rate. House prices in my area rose pretty much in line with inflation last year! You're not thinking this through properly. You need to do the maths properly. House prices in my area rose pretty much in line with inflation last year!

If you did sell at that point and managed to make a £20k profit, in order to buy that very same house, you would need a mortgage for £120-130k. In order to buy a bigger house? A bigger mortgage!

The problem with this market is that many, many people could not afford to buy their own homes again at market value. With the disadvantage of having given away 50% of the equity in your home, you'd be struggling yet again to buy!

In fiscal matters, I think it's incredibly important to stand on your own two feet; being able to make your own decisions and mistakes without your business partner having an alterior motive. So many friendships fall apart after buying a house together, especially in this situation where it's pretty clear that you would be in it for different reasons.

There are usually a lot of threads on this board discussing house prices and some (nb. I said 'some'!) very clever people taking part in those dicussions. I'm not saying that prices will crash, but I think you need to make less of an assumption that prices will rise.

If you want to be a property developer then go in with your friend but at least with the joint aim of making money, not the added confusion of you also needing somewhere to live. The balance just isn't right and as I said before, if you don't even have 50% of the equity in your own home, you're not much further on from where you are now.

Come on! Please take responsibility for yourself, tighten your belt, save some money over the next year and buy for yourself and take some real pride in your acheivements.

SeXyDeViL

..Is my advice!

Investing in a property with a friend could be suicidal & proved in the passed alot of the time is in fact suicidal.

Cushde I appreciate your keen to get on the property ladder & to provide well for the family but there are other methods other than involving a third party friend.
House prices are expected to remain stable & maintain their 15% value increase this year but there is no guarantee.
Sharing a big commitment like a mortgage with a friend could break you & where does that leave the family?

Look into shared ownership!

Best of luck buddy