Buying with a friend

ERT_3

After renting with a friend for ages and ages we have decided it makes sense to buy together rather than chucking money at our landlords every month. We've had an offer accepted on a flat and it all looks set to go ahead any minute now. The complication is that I have a big deposit (95k) and she has a little one (5K). We both earn the same amount, so the morgage is based on our joint income and we will split payment 50/50. Having put lots of thought into it, we think the fairest way is to split the property basically 65% to me and 35% to her. So say the property went up by 10%, I'd take my deposit plus 10% of it, she'd take her deposit plus 10% of that, and we'd split the rest 65/35. A couple of people have said thats not fair as I should take a bigger stake coz of my big deposit - after all I could have a lodger paying half the morgage but that wouldnt give them a propoption of the property. But I wouldn't get that morgage on my own.... We are both happy to agree to whatever seems fairest, and will of course get it all drawn up legally, its just really hard to know what the fairest way is!

honeychurch

Its difficult, and ultimately you both have to feel happy with what you agree.

I bought my first house with my friend last year (both FTB). I live here, he doesn't and lives/works in london so we got a lodger to help with affording the mortgage. After much deliberation on whether I should pay more of the mortgage because I was living here, we decided to just split it 50/50 (minus the money we earnt from renting the room out). So this was the tricky bit for us to agree.

If the price went up by 10% you would both get this return as a % of your deposits, so it would reflect the size of the deposits you put in? I guess what i'm saying is, why should your friend have a lesser stake in the property when you are both equally repsonsible for the payment of the mortgage?

doitmyself

ERT wrote: »

After renting with a friend for ages and ages we have decided it makes sense to buy together rather than chucking money at our landlords every month. We've had an offer accepted on a flat and it all looks set to go ahead any minute now. The complication is that I have a big deposit (95k) and she has a little one (5K). We both earn the same amount, so the morgage is based on our joint income and we will split payment 50/50. Having put lots of thought into it, we think the fairest way is to split the property basically 65% to me and 35% to her. So say the property went up by 10%, I'd take my deposit plus 10% of it, she'd take her deposit plus 10% of that, and we'd split the rest 65/35. A couple of people have said thats not fair as I should take a bigger stake coz of my big deposit - after all I could have a lodger paying half the morgage but that wouldnt give them a propoption of the property. But I wouldn't get that morgage on my own.... We are both happy to agree to whatever seems fairest, and will of course get it all drawn up legally, its just really hard to know what the fairest way is!

You have a £95,000 deposit! Why do you need your friend? Whatever kind of place you're buying her contribution would seem to be pretty irrelevant surely? Save yourself all the %this %that 65/35 bla bla and just buy the place (or another place) on your own. Save a lot of hassle in the long run I'm sure...

david29dpo

I did this 12 years ago. one of us earned a lot more than the other so that came to 75/25% ownership. i had no deposit. in your case, say you buy an house for £200000, you get a joint mortgage for £100000 and you pay 5% of that and you friend pays 95%. the ownership will be 50/50%. if you both want to pay half of the £100000 mortgage, the ownership will be 77.5/22.5%. bills will be 50/50 in both cases and house maintenance 50/50 or 77.5/22.5%. we believe this is the fairest way one of us is a solicitor!

ERT_3

Thank you so much for your speedy replies! I know there are no clear answers to this one.

So just to clarify: we are buying the flat for £302500. I have a £95000 deposit and my friend a £5000 deposit and we will pay the mortgage and bills etc 50%-50% - we worked this out to be that I own a 65% share and my friend a 35% share (my deposit buys me approx 31% of the property, hers 2% and we split the remainder 50-50). Does this seem fare on both of us or not? Also, the stamp duty is just over £9000 and the total costs are about £12000 - should this be paid equally (£6000 each).

If I bought on my own I could afford a place worth £220000 and in London this wouldn't get me a property nearly as nice. Also I'd be spending £900 PCM on rent rather than £580 on the more expensive one.

Thanks

Tiger_greeneyes

However you work it out, it's still a business transaction, even if it is between friends. Business arrangements can go wrong, however. To preserve your friendship, I'd recommend getting your solicitor to draw up a Declaration of Trust, detailing exactly who has put what into the purchase and how you'll share out the profits (if any). It's worth £150-£200 to make sure that there's no problems at the end of the day.

Alan_M_2

You are being very generous to your friend, - which is fine as long as you are aware that is the case.

Your joint deposit is £100,000, your friend is benefiting from a large proportion of your deposit by way of reduced interest rates on a mortgage and smaller monthly payments.

The only true fair way to split ownership is on the basis of the deposit itself.

Therefore you would own 95% of the property - your friend 5%.

Mortgage repayments, fees, stamp duty and any improvements to the building would be split on the same basis.

Household running expenses and bills split equally. - your friend then has a tiny share of a flat and a cheap way to live.

This is too one sided and not really workable I assume?

So, lets look at this another way, you are effectively lending you friend part of the deposit of the property (however you put it - this is actually what you're doing). So to get this down on paper so no arguments occur I suggest you do the following.

You have a total deposit of £100,000.

For a 65/35 split you need to deposit £65,000 and your friend £35,000.

Now she only has £5,000 - so you lend her £30,000 under a private arrangement you make between yourselves (involving an agreement and set monthly repayments of an amount with which you are both happy.

You buy the property, you pay 65% of the mortgage and costs incurred associated with arrangement of the mortgage (including fees and stamp duty) your friend pays 35%.

Any home improvements or expenditure that enhances or increases the value of the property is also split 65/35.

Day to day bills and household expenditure is split 50/50.

On top of this your friend will then be paying you repayments on a loan of £30,000.

You clearly own 65% your friend clearly owns 35% (you happen to have a personal financial arrangement outside of the mortgage which doesn't effect the investment percentage split as long as you are comfortable with loaning your friend the money (which after all is what you're doing by buying a flat together).

Your personal agreement for the £30,000 should included a clause that makes any outstanding amount repayable in full should the property be sold of if for any reason you decide to go your separate ways.

ERT_3

Wow! Thanks - that's very thorough and quite scary. When you put it in terms of a £30,000 loan it sounds like madness! Am I making a really bad decision? I completely trust my friend financially but still... Does anyone have any stories of success or horror in this kind of situation?

Alan_M_2

Really only you can answer that, it's not madness if you are comfortable with the arrangement and your friend can support the debt, otherwise I would suggest you own a larger proportion of the property at the outset.

Discuss it with your friend and show Her my post, see if it makes more sense to her when it's put like this.

Whatever way you look at it, to give your friend a 35% share of the property you are lending Her money.