The Power of Partnership: buying a home with friends for financial freedom

Affordability is one of the biggest barriers for first time buyers trying to get onto the property ladder – but buying a property with friends could help ease some of the financial pressure.

Having two or more incomes can make life much easier when it comes to demonstrating to lenders that prospective homeowners will be able to manage mortgage payments and having a bigger deposit should give them access to a wider range of competitive mortgage rates. It also means they can split the cost of household bills once they move in together.

However, committing to buying a home with someone else is a major decision, and shouldn’t be entered into lightly, or without plenty of forward planning. Here’s what there is to know.?

Things to consider?

Aspiring homeowners starting point when thinking about buying a property with a friend or friends should be to think long and hard about whether they’ll get on living under the same roof. Even if you’re great mates with someone, it doesn’t necessarily mean they’ll make good housemates. It might be worthwhile renting with them before buying, to see whether there are any issues that might make owning a property together untenable.

The next step should be to look carefully at everyone’s financial situations. Is everyone on a relatively equal footing, for example, or does one have a much bigger deposit to put forward and might want to own a bigger share of the property? When buying with more than one person, lenders will typically take the two highest salaries into account when deciding how much to lend.

Before applying for a mortgage, it’s worth talking about how everyone has managed their finances in the past, as if someone has a bad credit score, this is likely to affect the chances of the application being accepted.

Bear in mind that when taking out a joint mortgage, everyone named on the mortgage will be jointly responsible for paying it. This means that if one person stops paying, the lender can demand payment from the other. Trusting each other implicitly is therefore vital.

Setting up ownership

It’s also important to think about how to structure the ownership of the property.

There are two main ways to do this. First, the ownership can be arranged as ‘tenants in common’, whereby each person owns a different share of the property. If one person dies, they can choose who to leave their share of the property to.

Second, ownership can be arranged as ‘joint tenants’ which means each person has equal rights to the whole property. If prospective homeowners take this route, then should one of them die whilst owning the home, the person they have bought the property with will automatically inherit their share.

If you want to learn more, read our joint mortgages guide.

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London & Country Mortgages Ltd, Unit 26 (2.06) Newark works 2 Foundry Lane BA2 3GZ is a company limited by shares. Our Companies House number is 1988608. We are also authorised and regulated by the Financial Conduct Authority. Our FCA number is 143002. The FCA does not regulate most Buy to Let mortgages.

Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.

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