Mortgage with friend

oli_cromwell

First time posting here, and first time buyer, any advice muchh appreciated. 
So me and a friend are wondering if it makes financial sense to buy together (2 bedroom in London). My friend is having doubts because he thinks it makes more financial sense if he takes out the full mortgage, rents the other room out, thus paying towards his mortgage, and owning more in the long run.
However, we were discussing is this is really the case? He will have double the mortgage and paying loadsss more on interest, so even if it feels like making more money in the short, he'll pay way more in the long?
Bit confused on this and any advice would be really appreciated. 
Thanks, 
Oli. 

Vestraun

If he can afford to take on the mortgage on his own and get a lodger, it makes more financial sense and is far better for your friendship. Don't mix money and friends.

Thrugelmir

Such arrangements are fine until one party decides it isn't the way forward. 

getmore4less

As long as the lodgers rent is more than the interest on 1/2 the value of the property he will be better off getting the full mortgage and renting out the room over joint purchase.

That is if they have the same deposit as the joint purchase and the rate would be the same.
If the sole purchase is a higher LTV then that complicates it a bit.

they are also exposed to double the gain/loss when prices move.

grumiofoundation

oli_cromwell said:

First time posting here, and first time buyer, any advice muchh appreciated. 
So me and a friend are wondering if it makes financial sense to buy together (2 bedroom in London). My friend is having doubts because he thinks it makes more financial sense if he takes out the full mortgage, rents the other room out, thus paying towards his mortgage, and owning more in the long run.

To be honest your friend wants to buy on his own let him, don't try and 'persuade' him to buy with you if he doesn't want to (sounds like he doesn't) as if he agrees this could/will breed resentment and just lead to financial and emotional issues for both of you. 

In addition if you do buy together what happens if one of you wants/needs to sell, or move out? What if one of you gets into financial trouble?

However, we were discussing is this is really the case? He will have double the mortgage and paying loadsss more on interest, so even if it feels like making more money in the short, he'll pay way more in the long?

As mentioned by getmoreforless the LTV will have a big impact to these calculations.

But lets assume 400,000k mortgage at 2.5% - £1794 per month of which ~£800 per month is interest.

Alternative I assume would be for you both to split the mortgage, therefore each paying ~£900 off mortgage and £400 interest per month.

So if he gets a lodger (would you be this lodger?) who covers more then £400 per month then he is "in profit" versus taking out half the mortgage, and you taking the other half, and he will benefit double from rise in house price etc.

 Whether it is sensible for him to 'spread his risk' (risk house drops in value, risk he can't afford mortgage, lower upfront payment) by buying with you is another matter.

oli_cromwell

Thanks for the responses on this. SO useful. Really appreciate the time and thought you put in.