Buying a house with a friend

jelajelavic

Hi, I am potentially looking into buying a house with a friend, just wondering what experiences people have had of this and any advice.

He is one of my best friends and have lived has housemates for the last couple of years so we know each others living habits. We both have relatively good and well paid jobs and would be splitting the deposit and mortgage repayments 50/50 if we go ahead.

Just wondering if agreements need to be set up in terms of repaying and splitting costs, refurbs any increase in value etc.

Also not sure if banks frequently lend on this basis as thought most common would be families, couples, single people (for investment or residential purposes) and if there are issues with friends getting a mortgage on a house.

Thanks in advance

JQ.

Try to think of every possible outcome, agree on what to do and get it in writing. Things like:

One person wants to move their girlfriend into the house
One wants to buy the other out
One wants to sell the house but the other doesn't
One person wants to move out but not sell their share to the other but rent out their room
Both want to move out, but one wants to sell and other wants to retain as a BTL
One wants to spend money on the house and the other doesn't

There will be lots of other possible outcomes and you need to try and think if them all. Should you not agree in advance what to do it will make it much more difficult to agree an amicable solution.

Doing it 50/50 is the only way as different deposits and mortgage payments make calculations soo much harder down the line.

On the basis you've already lived together and you agree everything in advance (in a legal agreement) it's not a bad idea.

mrginge

It's a terrible idea. Don't do it.

Ivana_Tinkle

In addition to JQ's list:

- one of you loses their job/falls ill and can't pay the mortgage - can the other be forced to sell?
- value of property falls substantially and you end up in negative equity

I agree that having lived together before and the fact that you're splitting everything exactly 50:50 is a good basis on which to start.

chuckley

never mix business with pleasure, especially on such an enormous amount...

taxiphil

Some good replies above, and if any of those scenarios should come to pass (which is highly likely) your legal fees could be eye watering. These kind of situations make lawyers rich.

BigAunty

We do see many car-crash posts on this forum from friends and relatives that have bought together (or became landlord/tenant) and who have conflicts that have ruined the business relationship (because that's what a joint pwnership entails). This includes where one wants to sell and the other doesn't or the relationship has broken down. They lose both home and friendship. Have a big think about all the risks and how the investment side of it really can magnify what should just be minor flatsharing issues.

JQ.

Question for the doomsayers - what's the difference between buying with a friend who you've lived with for several years and buying with a girlfriend?

I can understand reservations when buying with a stranger or someone you've not lived with before, but someone you know well should not be an issue so long as you enter it with eyes wide open.

ps - people tend to not come onto forums such as this to report how well a joint purchase has gone, which is why we only see the car crash posts.

jelajelavic

I appreciate the posts and advice and do understand there is a potential for thinks to go bad but I am talking about a very good friend and I see me less likely to fall out with him than breaking up with my girlfriend and that going sour for example (surely having a mortgage together with an ex is worse than a friend?)

Like I said i do understand the don't mix business with pleasure opinion but we have lived as housemates for several years and are both chilled out so unlikely to argue about anything.

The only things I can see being a problem are job loss and future decisions over selling, girlfriends moving in etc but if that's cleared up and agreed upon it should be ok. Also, we both have income protection through if we get seriously ill etc. so loss of earnings shouldn't be too much of an issue (fingers crossed)

More opinions welcome and any other issues that may come up

Kynthia

Compromise, communication and planning are key here, as it has potential to be a massive disaster. Mixing money and friendship is always risky, but this is a 25 year debt in order to buy the most expensive asset you'll ever own that can also decrease in value and be difficult to sell.

You must discuss every possible scenario first and be clear on what you both agree. Then please, please, please get a cohabitation agreement drawn up through a solicitor. I truly believe you are asking for disaster if you don't.

Other possible topics to discuss are:
What if one of you wants to move out and have a lodger move into the property to cover their share of the bills. Does the other get a say about who they have to share with?
What if the property is in negative equity and you both need to move girlfriends in.
What if one of you gets married?
What if one of you thinks some maintenance needs to be done but the other disagrees and doesn't want to pay?
What if one of you is happy to sell at a loss and the other isn't?
What if you both want to buy the other out in a few years?
What if one of you refuses to pay their share of the mortgage adn refuses to move out, and the other has to pay the full amount or end up losing the property?
You'll be financially linked so what if one of you gets a bad credit rating and brings down the other person's rating?

bowlhead99

I notice from another thread that you recently had 2 maxed credit cards, one over 25% APR and were declined another. That implies you don't have 10%+ house deposit plus stamp duty and costs and the ability to contribute to mortgage, maintenance, improvements as well as your housemate. I would not want to go into a deal like this being the poorer of the two partners and always being on the back foot when trying to pay my way. And if the housemate's finances are even worse than yours, you'll be waiting some time...

Still, you didn't ask about how to get the money. If your cashflow has improved and you have a normal first-time buyer deposit, and there are only two of you, you shouldn't find it particularly difficult to get a mortgage (at least not more than if you were married or civil partners) - you can shop around online or use a broker. The online forms all expect up to two joint applicants, it's only if you are looking to buy with two or more mates, i.e. 3-4 people, that you'd need to go into a branch or broker in person to be treated as a special case.

Even if 5-10% deposit mortgages are available I would look to get a bigger deposit - as the risks of buying with friends is that your separate developing lives don't keep you together the same way a family would stay together; if the risk of splitting up is greater, you really want to avoid the negative equity possiblity, by putting in more than the bare minimum. You mentioned income protection insurance - is that guaranteed to pay out in every eventuality, and for long enough that one person being ill or really ill wouldn't cause inconvenience or hardship to either of you?

If you have thought through all the eventualities you can ignore the cries of 'don't do it' though they are only trying to help. But to "wonder if you should have an agreement" is kind of naive. You are borrowing probably hundreds of thousands of pounds and the bank can come after whichever one of you it likes to recover it. Do not do any deal without agreeing everything in writing. A solicitor will do a basic deed of trust for tenants in common for a nominal fee. When you have properly thought through everything about the economics and the practicalities you will realise the standard one off their shelf is woefully inadequate. You don't need to include a rota for buying milk or cleaning the loo, but you do need everything to do with rights and responsibilities of ownership, occupancy and the deal economics you negotiate.

Some thoughts follow. These don't all have to go in an agreement but imagine you hate each other and are each trying to screw the other out of as much as possible. Which bits should you decide not to bother documenting now while you're on speaking terms...?

paying for it:
- how will you split the purchase deposit, stamp duty, fees and other closing costs

- how will you split the ongoing costs. Is it different between legal ownership costs (mortgage, buildings insurance, council tax) vs things more connected to occupancy (heat, light, internet, TV, lightbulbs, toilet paper). Should you allow the latter to vary by person to accommodate the fact one has a better bedroom, without changing the basic ownership or obligations for mortgage?

- where does essential maintenance come into it - presumably not optional, one person call a plumber and you both pay for it? What about nonessentials like a new shower unit - do you both need to sign off on it? Are new roof tiles essential or non-essential? What about renovating the place to sell it for maximum potential cash proceeds, vs trying to sell it for minimum cash outlay- who decides?

- does the answer to any of the above change if one person is not currently living in the place because he moved in with a partner or his parents or he moved away with work?

- can you remortgage? presumably not without both of your consents. What about one of you taking a secured personal loan to pay off his credit card bills? Not allowed, or allowed subject to certain rules?

- if someone did move out can he move a friend or family member in to cover his share of the mortgage obligations? Or can the other person veto his choice of lodger, given they have to live with them? Can the person that remains go and get a lodger if the other has abandoned him and stopped paying his fair share on time?

- along the lines of 'who can move in', is it different if it's someone moving in while one of you is away versus while you're both there? Is the answer different if the person you want to move in is a partner or a spouse or an unexpected baby of one of you, or perhaps a child or relative of a spouse? Or your housemate's spouse turns out to be your ex?

- if someone else moves in, how does it affect the bills split and the mortgage split? You will have conflicting points of view if you wait until it happens.

- what happens if someone can't pay their fair share for a couple of months because of some unforseen hardship or family crisis? Or had a mental breakdown due to stress or a psycho girlfriend? Will the other subsidise him for a bit?

- if so, is it different if someone lost their job versus quit their job, or was relocated with work vs chose to move with work? How do you dis-incentivise them from abusing a free lunch?

Exit route:

- will there be some minimum time that you promise each other you will not demand a sale? Will you prohibit the housemate selling their share to a friend or relative or wife (or giving it away in a divorce settlement) during that time? After that point will you have a notice period before you can market the property? If you do market the house is there a minimum amount you would accept rather than keep hanging on a couple of years because one of you didn't really want to sell anyway and is being obstructive?

- what if someone wants to buy the other out? will you define up front a minimum or market-related buy-out price and give the other person the option to exercise it whenever they like?

- if you do sell, or buy out, how do you allocate the proceeds. Presumably you'll say 50:50 because that's how it was funded? Bzzzzzt wrong answer, it was only funded 50:50 if everything worked out perfectly, so what happens when it wasn't?

So,
- how do you split the profits over and above the amounts you put in?

- how do you split the proceeds if they are less than you put in? Is it based on how much you put in? What if someone paid the other's share for a while due to hardship or differing occupancy and the other person only just caught up their payments in cash terms but really had less money tied up in the property for much of the time?

- how do you split the negative equity if the mortgage couldn't be cleared with the proceeds? What if only one of you wants to exit and you are in negative equity or have an early redemption penalty on your mortgage?

- another exit route is death. If your co-owner was a wife or partner you might let them have your share of the house if you died. If they are a mate, you might prefer your family to get your share of the house. So when you die your mate is now co-owning a house with someone he doesn't know or like and who can't afford the mortgage or has no interest in paying it. He could sell, but what if your heir doesn't want to, or the housemate doesn't want to because his life savings turned into negative equity and it's a reeeeally bad market to try and sell in rather than hanging on to try and come out the other side. Your death could really screw him over financially.

Insurance is probably of use here but not so much that you actually buy him an entire free house... you might instead prefer to spend the premiums on insurance for your family's benefit, or personal investents or holidays, or saving up to buy him out quicker.

Beyond these basic (!) issues of ownership you have all the other things you'd normally have in your 'gentleman's agreement' you had when renting: ground rules for living together generally. An inventory of who owns what in terms of white goods, dining table, sofas etc? Who buys the bed for the spare room when you already both have a bed and neither of you think you'll want two beds when you sell up and go back to living in separate flats? Who does the washing up, whose turn is it to mow the lawn or put the bins out? Are you allowed pets?

Food for thought. And this is not an exhaustive list, even if it is exhausting to read