Property ownership requires a significant investment of time, effort, and money, so buying a house with friends has proved an attractive option for people eager to get on the property ladder but without the resources to go it alone.
But it also comes with disadvantages. For instance, joining forces to buy a house with a friend or relative also means that you could be responsible for the entire mortgage if the other person defaults.
With these issues in mind, this article breaks down the pros and cons, implications, and key questions to address before considering whether to buy a house with a friend so you can decide whether it’s the right move for you.
The primary reason to consider buying a property with one or more friends is affordability.
Simply put, dividing a property purchase between two (or more) people works out cheaper for each person than for one buyer to pay the full price alone.
That remains the case whether the buyers intend to live in the house or they plan to act as landlords and let the property out to renters.
Additionally, buyers without a spouse or partner may see purchasing with a friend or sibling as the most sensible way to share the cost of home ownership.
Everyone’s situation is different, but creating a pros and cons list can help you decide whether buying a house with a friend is the right choice for you.
It makes the deposit, maintenance costs, and mortgage more affordable.
It’s easier to share the financial burden of a new property with a co-owner than with a tenant, in case you’d planned otherwise to rent out a room to make your mortgage payments.
Living together with a friend can be more sociable than living alone in case you’re planning to live in the property together. This could be especially relevant if you’re accustomed to living with flatmates.
While paying for a mortgage with two people may initially seem easier, the lender will use the credit reports of both of you to decide whether to accept your mortgage application. As a result, one person’s bad credit can negatively affect the mortgage terms for both of you.
Forming a financial partnership can strain a friendship. Your otherwise happy and carefree relationship could suffer if, for instance, the other person begins missing mortgage payments.
Tying your financial life -- including your credit score -- to a person who may not share the same goals as you could prove a risky proposition.
You can seek out a joint mortgage if you’re planning to buy a property with a friend or group.
Joint mortgages are most common with couples but that doesn’t necessarily need to be the case.
In fact, you can apply for a joint mortgage if you plan to:
buy a property with one or more friends or relatives who you intend to live with
buy a property with a friend or relative who’s contributing money as an investment or who wants to help you afford the property
buy a property with a business partner
But your joint mortgage will only be as strong as your weakest link. If one person has a poor credit score, for instance, that will adversely affect your rates -- and whether you can get a mortgage at all.
When buying a house with a friend, you’ll need to decide how the property is going to be owned.
In the UK, that typically means choosing between either a tenants in common or a joint tenants agreement.
In a tenancy in common, each party owns a particular share of the property, usually based on how much money they’ve contributed. The shares could be split evenly or not. For example, one person could own a 70% share compared to the other person’s 30% share.
A tenancy in common is probably the more likely choice for friends who are buying a house together.
On the other hand, a joint tenancy is the usual choice for married couples and civil partnerships. In joint tenancies, the buyers own the entire property together. It’s irrelevant how much money each person has contributed towards the purchase -- the property will always be owned in equal shares.
Buying property with a partner, whether a spouse or not, can be more straightforward in some ways because you’ve probably discussed long-term life plans.
That’s not necessarily the case with your friends, however.
As a result, before buying a house with a friend it’s a good idea to sit down and address the following questions together. It’s an even better idea to write down and keep your agreed-upon answers someplace secure.
Will current or future romantic partners be allowed to move in?
What will happen if one person wants to sell their share or change the agreement?
How will mortgage payments be made if one person loses their job or otherwise has a change in financial circumstances?
What happens if you stop getting along? Will one person move out? If so, will that affect the mortgage payments?
You’ll also need to create a plan for jointly handling the business affairs side of property ownership.
Co-owning a house means that you will both be financially invested in ensuring that your relationship endures and that your property is cared for. Your credit scores will also be connected for the foreseeable future, so you’ll both have incentives to handle your financial affairs responsibly.
Having a structure in place before any problems or disputes arise should help reduce -- though you can never fully eliminate -- potential sources of friction.
Key responsibilities include:
council tax and other bills
costs for unexpected repairs
Owning a home with a friend also has implications if a time comes when the interests of the co-owners diverge.
For example, if one person wants to sell but the other doesn’t, then the person seeking the sale needs to apply to a court to force the sale. The court considers the personal and financial situations of the co-owners, as well as how any sale would affect any dependents living in the house, such as children or elderly relatives, before deciding whether to allow the sale to go ahead.
There could also be implications for inheritance.
If you’ve chosen a tenancy in common, which is the more likely route for friends, you can gift your share of the property in your will to whomever you choose.
But if you’ve chosen a joint tenancy, the property goes to the surviving owner (or owners) when one person dies. Unfortunately, this could result in an inheritance tax bill if you’re not married or in a civil partnership with your joint co-owner.
Ultimately, perhaps the biggest non-financial factor is the nature of your friendship with your potential co-buyer.
Deciding whether they’re the right person to join you in what is probably the biggest financial decision of your life isn’t to be taken lightly. Consider:
How strong is your friendship?
How long have you known each other?
How compatible are your decision-making styles?
Do you have comparable tolerance for risk on financial matters?
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