What To Consider When Buying Property with Friends

Buying property with friends is a growing trend in these times where affording to buy a property on your own is out of most people's reach. But, like when you buy a property with your partner, there are things to consider before taking the plung ...

Buying property with friends is a growing trend in these times where affording to buy a property on your own is out of most people's reach. But, like when you buy a property with your partner, there are things to consider before taking the plunge.

According to research, 67% of 25-34-year-olds say saving a large enough deposit for a house is their most significant hurdle to home ownership. It is a well-known fact that more than half of first-time buyers need a little help from the Bank of Mum and Dad to take their first steps on the property ladder.

This is why buying property with friends has been trending in recent years because it allows you to pool your resources with close friends to increase your borrowing power and secure lower mortgage repayment rates. But there are still pros and cons to choosing this route.

Legal protection is a must

Committing to buying a property together is a significant undertaking. This involves large sums of money changing hands and will raise questions about trust and reliability. You may worry that the financial pressure of buying a property can ruin a friendship.

No doubt buying a property together can change your relationship dynamic, and you will go from being just good friends to financial partners in a long-term legal contract. This is why you should get legal protection to help minimise misunderstandings and reassure everyone involved in the project that their rights are protected.

Here are steps you can take that will help when buying a property with friends to make the process easier and more secure.

1: Establish what you can afford

It can help to consult with a financial adviser or mortgage provider to determine how much each partner can afford to contribute, the type and size of property you can afford, and to identify mortgage lenders that are happy to offer multi-person mortgages.

2: Keep track of your contributions

Everyone involved in the partnership should track what they contribute financially. It may be the case that you have friends that want to invest with you but are on different salaries and income levels. This can make it challenging to determine a fair contribution towards the deposit, legal fees, and mortgage repayments.

You will also need to determine what percentage of the home each of you will own. When you buy together, it doesn't mean everyone will have an equal share of the property. Buying together is a great way to get on the property ladder, but what you own as an individual will count when it comes time to sell the property and take your share of the profit.

3: Get everything in writing

Investing your money into a property will be one of the most significant financial commitments of your life. It can help to have everything documented correctly and get a formal legal agreement written up that clarifies and underpins your joint arrangement.

For example, you can use the title 'Tenants in Common,' which allows you and your friends to own unequal shares in the property. You can then set out how your shares are calculated in a Deed of Trust. However, if you are forming a partnership with equal shares, you can use the title of Joint Tenants. Consult with your solicitor to clarify the most suitable approach for your situation.

4: Agree on your exit strategy

At some point in the future, one or more of you will want to move out and sell your share of the home. You need to sit down and discuss this with your friends to decide what will happen when this occurs. It can help to hold regular mortgage review dates or equity milestones to discuss your circumstances with your friends.

You can agree to buy out each exiting partner by re-mortgaging your home with your remaining friends. You may have another friend that would like to buy the existing partners share and move in with you. Or you may want to buy out your partner and rent their room to help boost the household income until you can afford to take on the property yourself.

Conclusion

Buying property with friends is becoming a viable way for young people to get onto the property ladder. Still, you must communicate well with your co-owners to ensure everything runs smoothly.

For many people, buying a property with friends is an exciting prospect, but eventually, you may want to move on and find that dream home of your own you wanted. This is why you need to enter co-ownership with your friends with formal legal agreements and protection for it to work.

If you are looking to buy a property, our expert team can advise you.

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