Is buying with friends and family a good idea?
Sharing the cost of buying a home can certainly be a good idea if you do it properly. That is, there are lots of potential advantages, but there are also pitfalls to be aware of and deal with as far as possible before you buy. Doing your homework before you go ahead is a must.
What are the advantages?
Sharing the cost can make getting on the housing ladder more affordable. For instance, a deposit, purchase fees and mortgage payments can be shared amongst you. Once you move in, you'll also be able to share the cost of maintaining the property and bills such as council tax.
What about disadvantages?
There are some, but most can be overcome with careful thought and planning. For example, should your (or your purchase partner's) circumstances change, for instance through loss of income or a need to move away, then you might run into difficulties agreeing how bills should be paid, or even what to do with the property.
Example 1: It is important to remember that each person will be responsible for mortgage payments. If one should fail to pay up then you will all be liable to cover the shortfall.
Example 2: If you want to move away you cannot sell the property to release funds unless your partners agree. If they do not want to sell, they may be interested in buying your share from you, but this can be a complicated process - particularly agreeing a price. If that is not possible then you may have to rent out your room in order to cover costs.
How do I guard against these potential problems?
Really this is just about taking sensible precautions. First and foremost, only buy a property with people you know well and who you trust.
Secondly, you must put a legally binding cohabitation agreement in place before you buy, to make sure that your investment is protected. A cohabitation agreement should be drawn up by a qualified solicitor and should cover as a minimum:
Precisely what share of the property you each own
How much money each party will put towards a deposit and/or mortgage (these two points are often linked)
How the property should be valued should one or all of you wish to sell, and who will handle the process
What happens in the event of the death of one or more partners
Specific procedures for dealing with disputes and disagreements between you. This part of the agreement should be as detailed as possible, even setting out how specific disputes should be settled
Who pays for maintenance, and how exactly any costs will be shared
Whether rooms can be rented out and who gets to select the tenant
It is also very important that each partner has a will and testament in place, as well as life insurance.
Once you have bought, it is a good idea to keep detailed records of all costs you incur, from deposit and mortgage payments to bills and maintenance costs. This will help you to avoid arguments later.
Remember, a financial association with someone on your credit report can have a big impact on your finances. Watch this video for top tips on what to look out for.
How do I find a mortgage for this kind of purchase?
As with any mortgage, a lot will depend on the circumstances of you and your purchase partner - particularly income and credit rating. However, although mortgages that allow joint purchases are not common, a bit of searching should give you a number of options to consider. If you are not sure what to do, seek independent financial advice.
What kind of property should we buy?
Clearly, a lot depends on your means and your circumstances, however, it is better to go for something that you would be able to sell quickly, should the need arise. That might include:
Homes with separate bedrooms and bathrooms
Homes with large living and kitchen areas
Homes that do not require significant renovation or repair
What else should we consider?
There are a number of things you can do to make living together more comfortable and avoid arguments. You might consider:
Setting up a joint account from which mortgage payments are taken
Putting together an inventory of home contents, with details on who owns what
Establishing some house rules dealing with things like noise, friends staying over, pets and smoking