For the many twentysomethings priced out of the property market and tired of renting box rooms in digs, buying a place with a friend can be a sociable and affordable solution.
David Massingham, 30, who works for a bank in London, bought his flat in 2006 with a friend and colleague: “We got along very well and both thought property was a good investment but not one really available to us as individuals given property prices in London,” he explains."
Cardiff-based web developer Dave Wilde, also 30, also bought his house with a friend at 26: “We were at university together so we were in a similar financial situation and life stage. We felt at the time that if we didn’t get on the property ladder with the price of houses escalating then we would not be able to.”
Jon Foulds, a 25 year old marketing manager is considering buying a property with a friend he currently rents with. He thinks low interest rates, soaring rents and people's desperation to sell amid the slow property market will work in buyers' favour. “It seems a good time to do it. We've discussed buying a two-bedroom flat, agreeing to keep it a set amount of time, say two or three years, and then selling when the economy is a bit better and prices might have risen. Even if they've stayed level, at least we haven't been paying insane rent for those years!”
When buying a property with a friend, the first thing you need to consider is how to structure the purchase. There are two types of purchasing agreement: Tenants In Common and Joint Tenancy.
In a Joint Tenancy agreement, interest on a property is transferred to the surviving partner in the event of death. This is most popular with couples, but it can also work for groups if interest is shared among the remaining owners.
A Tenants In Common agreement works best for a pair or group where different people are contributing different amounts. It's a good idea to have a contract for a set period of co-ownership. For example, 10 years with a break clause after five, or a rolling two-year contract.
Having a friend to share the inevitable highs and lows of home-buying can ease the burden, and often carries less emotional weight than buying with a partner. That doesn't mean it requires any less thought. As estate agent Henry Sherwood says: “Most problems with co-ownership arise from the lack of forward planning and not having a clearly-defined exit strategy. Without this, the agreement can be left open-ended, which can cause problems if one party wants to sell their interest.” Just as if you were taking the plunge with a partner, you need to think of how you'll cope with changing circumstances, such as if one of you is made redundant or becomes seriously ill.
In an arrangement that is purely practical and friendly as opposed to romantic, adapting to adverse situations can be especially tough. Dave, who obtained a 100 per cent mortgage through Northern Rock before it famously collapsed, says it was “too easy”, and admits that his friendship was challenged later on: “We could easily have fallen out over certain things,” he says. “The property climate changed as well as our circumstances and we had not prepared for many things. I think it is a testament to our friendship that we are still friends today.”
As friends, if you both plan to marry and have families in future you'll particularly need to discuss what will happen when one of you inevitably moves out before the other. Setting the price when one wants to buy the other out can be difficult. After David's flatmate Mike married and moved out, they were given two very different valuations. “We ended up setting a relatively conservative price which was clearly good for me. A month or so ago, Mike noticed that some flats had sold for much higher amounts. This was mentioned quite innocently but - at the same time – the message was clear that he thought I'd got a very good deal. I said that if I sell it and make a significant gain then I will see to it that he benefits.”
Though buying with a friend is rarely a long-term investment, the experience can be a very good bridge between student-style house shares and the eventual challenges of buying with a partner. “I learnt a lot about home ownership and what could and couldn’t be done,” says Dave Wilde.
Four Tips For Buying With A Friend
- Rent first to be sure you get on
- Decide how to structure the purchase
- Decide on an exit strategy, and how you'll adapt to changing circumstances
- If you're buying in a large city, remember that most property is leasehold rather than freehold
- meaning you have the right of occupancy but don't own the building
- and you'll need to pay a service charge on top of the mortgage and council tax. Buying a flat in an adapted house will lessen the extra expense
Considering buying a property with a friend? Then give our mortgages comparison service a go to see what rates are available...