Childhood friends Amy King and Alice Ward bought a two-bed flat together in December after deciding it was the best way to own a property before hitting the age of 30.
The Countryside Feature 17 pad in Walthamstow cost £505,000 and they put down a 10% deposit between them.
‘We have known each other since school and lived together previously. We were keen to buy in London and have similar tastes so it made sense,’ says Amy, 28, who is a Metropolitan police detective.
Using a Help to Buy loan enabled them to keep down their monthly payments, which are just £410 each for the next two years. Because the property was a new-build it had no established address, meaning they couldn’t set up a joint bank account.
Alice, 29, who is a wine bar general manager, currently pays the joint mortgage from her current account. Amy has a standing order set up to pay her share directly into Alice’s account each month.
They split the deposit, mortgage payments and bills 50/50 and set up a deed of trust to set out the agreement legally. ‘My share of the assets go to my family if I die, rather than Alice, and vice versa. That is all set out in the legal document,’ explains Amy.
And they have their future plans set out. ‘With Help to Buy you don’t pay the 40% loan for the first five years.
‘We will probably renew the mortgage for another two years and then sell the property and divide the money before the Help to Buy payments kick in,’ explains Amy.
Share-buying
Share-buying a home is not as complicated as you might think.
For starters, mortgage lenders will happily allow any two people to apply for a joint mortgage if they meet the financial criteria. It is actually less risky for lenders because the costs are being covered by two people – so buying with a friend or sibling won’t affect the mortgages available to you.
The only caveat is that if one person has a poor credit score the only option available might be an adverse lender, which could significantly increase the mortgage interest rate and monthly payments offered.
Affordability
The benefit of buying a property with another person is you can pool your resources and put together a larger deposit, which will decrease your monthly payments.
‘You can also borrow more money from the lender and purchase a property of greater value and living standard compared to the property that you would buy in sole name,’ says Gerard Boon, partner at Boon Brokers.
But you should bear in mind that mortgage lenders usually require borrowers to live at the property they are buying unless they have a specific buy-to-let mortgage.
Deed of trust
From the outset it is important to decide the beneficiaries’ interests – who owns what percentage of the property. This will depend on the deposit each party pays and how the monthly payments are split. This does not have to be 50/50 but it does need to be recorded in a deed of trust.
‘If you don’t record carefully the share each party has in the property when it comes to sell it or if the parties fall out, it can lead to a legal dispute,’ warns Kevin Ross, director at Brown Turner Ross solicitors.
This is particularly important for friends or siblings because buying a property together is usually a short- term solution. By setting up a deed of trust the process is much simpler if one party wants to buy the other person’s share, or if the property is sold.
‘Disputes usually happen at the end when a property is being sold so it is important to get it right at the beginning. It should be treated like a business arrangement so each party knows where they stand,’ adds Ross.
The disadvantage of a joint mortgage is that both parties will be using up their first-time buyer stamp duty relief. This means should either party buy another property on their own or with someone else they will have to pay stamp duty and if it is a second property this will be at a higher rate.
Family affair
There are other options if you wish to have more than two people paying into a mortgage and the interest rates premiums are fairly competitive. A joint borrower sole proprietor allows up to four people to pay into a mortgage enabling family members to help each other out.
‘This is popular with siblings. It means one sibling can be on the deed and own the property while other siblings are on the mortgage. They can live in the property, too.
After, say, five years of a fixed-rate mortgage the other siblings can come off the property and they don’t get caught up in any ownership issues,’ says Richard Dana, co-founder of Tembo the family mortgage broker.
And if more than two people want to own a property together, family mortgage lender Generation Home allows up to six people to buy together rather than the standard two people allowed on a joint mortgage.
‘Most lenders only allow one direct debit even on a joint mortgage. Our platform enables as many direct debits as you want and the borrowers control who pays what amount.
We also offer dynamic ownership, which keeps a record of who has paid what and the percentage of ownership changes with each payment that is made,’ explains Generation Home founder Will Rice.
Products and rates
Before applying for a product it is important to consider the mortgage rate length and how long you are likely to live with a friend or family member before either one of your circumstances change.
Don’t agree to a five-year fixed rate mortgage if you think you will be buying with your romantic partner in a couple of years.
Metro Bank offers a 95% joint borrower sole proprietor mortgage at 3.49% interest where the joint borrowers are an immediate family relative. It will allow up to four incomes on the mortgage.
The upper age for repayment of the mortgage is 80, so for a 25 year term that would mean the maximum age is 55 at the time of purchase for all of the joint borrowers.
The rate drops to 2.59% with a 20% deposit. By comparison, a standard joint mortgage with a lender such as Natwest would be 2.84% for a 95% mortgage and 2.19% for an 80% mortgage.
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