Buying with a friend

turnthepage

I'm interested in buying a house with a friend. However because I already own somewhere I would rent out my share, she doesn't own a property so would be living there herself.

Just wondered how this would work in practice - would the mortgage be a buy to let or a normal one? Given that one owner is living there and the other renting the room out, I'm not sure... And stamp duty...

G_M

It would be your 2nd property, so the higher rate of SDLT ould apply.

As (one of) the owners lives there, the other occupant would be a lodger (excluded occupier), so a BTL mortgage not required.

LODGERS (Licencees/Excluded Occupiers)
A lodger (broadly) lives in the same property with a resident landlord & shares facilities. Unlike tenants, lodgers have few rights.

The Housing Act 1988 provides definitions of 'Resident Landlord' & 'same property' (S31 & Schedule 1 (10).

See:

LodgerLandlord (21 tips from solicitor Tessa Shepperson + General information site)

Landlordzone (Various articles on taking in lodgers)

Renting out rooms in your home (Government info)

Rent a Room Scheme (HMRC guide for tax-free income from lodgers)

kinger101

Sounds impractical for me for a number of reasons;

(a) higher rate SDLT means your friend pays an extra 3% as well
(b) would she approve your choice of whom she live with?
(c) might be a nightmare finding suitable mortgage(s)
(d) deciding on maintenance

There's no way in hell I'd let anyone else, no matter how good a friend, have any control over who lived in my home where I was the owner-occupier.

Mojisola

turnthepage wrote: »

I'm interested in buying a house with a friend. However because I already own somewhere I would rent out my share, she doesn't own a property so would be living there herself.

Given that one owner is living there and the other renting the room out

I'm curious about the status of the renter - would he/she be a tenant because you are the LL and you aren't living at the property or a lodger because one of the owners is living there?

turnthepage

Thanks for the replies - we know who the tenant would be already, so that wouldn't be too much of a problem. Would we both have to pay the higher rate of stamp duty?

csgohan4

money and friends shouldn't mix.


what if you fallout with this 'friend'?


If they stop paying the mortgage you are both jointly liable for the mortgage and you both will damage both your credit history.


What if you want to sell and the other doesn't?? What if you wanted to get your own place or they wanted their own place for their partner/children????


Stamp duty applies to 2nd properties unless you sell your 1st house within a certain time frame

Cakeguts

This is a total disaster waiting to happen. The first thing is that you should never rent to family or friends because it doesn't tend to end well. So if the lodger/tenant is a friend as you know them, you already have a potential problem.

What happens if the lodger stops paying rent? Who tells them to leave or pay up? Who pays for the maintenance/service charge the person who lives there or is it shared? What happens if your friend loses her job and can't pay the mortgage do you pay it all? How do you sort that out when she gets another job do you go round there and demand the mortgage payments?

The general advice is not to be emotionally involved with a property that is rented. But you will be emotionally involved with this property because your friend lives there and some of it will be rented by a succession of lodgers. A mortgage can last for 25 years. You are unlikely to find a lodger who wants to live in this property for 25 years so even if you start with someone you know you can't guarantee that they will stay there.

The whole thing sounds like "it seemed like a good idea at the time........"

If your friend wants to buy a house then she should buy on her own. If she can't afford to buy on her own then she needs to rent or move to a cheaper area.

booksurr

turnthepage wrote: »

Would we both have to pay the higher rate of stamp duty?

SDLT is applied at the higher rate to the whole purchase price. There is not a mine and his share

Whether the two of you decide to split that 50/50 or whether your friend says you are the cause of the increase, so you must pay the extra yourself, is down to what you two agree on

Mojisola

turnthepage wrote: »

Thanks for the replies - we know who the tenant would be already, so that wouldn't be too much of a problem.

It does matter because a tenant's rights are very different from a lodger's right. As a LL, you need to know your legal responsibilities.

G_M

Mojisola wrote: »

It does matter because a tenant's rights are very different from a lodger's right. As a LL, you need to know your legal responsibilities.

and a LL's rights/obligations towards a tenant are not the same as towards a lodger.

The answer is for the lodger to pay rent to your friend and receive a lodger agreement from your friend. Your friend is then a resident landlord. The downside for him is that he is then liable for the tax, though hopefully it will fall withing the rentaroom limits.

You and he should in any case also be agreeing a whole raft of other things
* who pays what maintenance
* who pays running costs
* what happens if one of you wants tosell
* what if one of you marries and spouse moves in
* what if one divorces and spouse makes a claim on the property
* what if the mortgage goes into arrears
* what if the lodger goes into rent arrears - can you afford the mortgage and who takes responsibilty
etc

You need to imagine every possible future scenario and document what would happen - tryig to resolve issues only once they arise is a nightmare.

stardust09

My gut feeling is that there are red flags everywhere in this situation. I would avoid it. It's got too many potential pitfalls and could leave you hugely out of pocket financially/with a ruined friendship/with landlord responsibilities/one person not being able to afford the mortgage and getting their part repossessed, etc. In addition, further down the line, one or both of you might end up in a terrible ethical dilemma about wanting out but feeling responsible for the other person.

And you might also both have different ideas on how to maintain the house to keep its value. What if you believe in preventative action and your friend prefers to leave repairs until they're absolutely essential? Or if she doesn't bother about steam in the bathroom and you want her to open the window as it's causing mould. Trust me, the smallest issues often cause the biggest ongoing problems. Everyone has different ideas about how to live, and you won't even be on site to see it or negotiate things eary enough.

You need to have a watertight plan for all the worst case scenarios before even considering this, and even then I'm not sure even the most watertight plans would be good enough.

Avoid.