Key to buying a home with friends
Friendship can be a shoulder to cry on, companions to share a meal with on a Saturday night, or knowing that each will laugh at the other's jokes.
But how many friends would be willing to share the biggest financial commitment of their lives?
Some first-time buyers, faced with demands for large deposits from lenders, are choosing to buy their first property with friends.
But is it a good idea?
Estate agents say joint ownership can make financial sense, but only if the deal is thoroughly thought through and everyone prepares a good exit strategy.
"Remember, this may be your home, but it is also a business transaction and one of the biggest decisions you will ever take," says Peter Bolton King, chief executive of the National Association of Estate Agents (NAEA).Mortgage squeeze
Former schoolmates Neil Tippett, Andy Jones, and Sam Jones, decided to take the plunge when they bought a house together in Oxted, Surrey.
Tips for joint ownership
- Draw up a contract in case of a change of circumstances
- Shop around for mortgages
- Keep paperwork in order and in everyone's name
- Consider a joint bank account for paying bills
- Draw up an inventory of non-shared items
Source: National Association of Estate Agents
Fifteen months later, the trio say they have no regrets, with washing up rather than their financial welfare leading to the only arguments.
"Just make sure you think through what is going to happen in the worst case scenario," says Mr Tippett, a 28-year-old software engineer.
"As long as you think through those situations, and find the correct information on how to go about it, I would highly recommend it."
All three were looking to "spread their wings" by moving out of their parents' homes. But the barriers facing them will be familiar to many young people looking to set up home in the past couple of years.
Firstly, there were few homes available for young professionals to rent in their area.
Then, after ruling out the rental option, they found mortgage providers were rationing loans for all but the most affluent and safe of potential buyers.
"Being self-employed meant that getting a mortgage was very difficult. Getting a first-time mortgage was even harder," says Andy Jones, a 28-year-old landscape gardener.
Then there was the deposit. In 2010, the average deposit, according to the Council of Mortgage Lenders (CML), was 23%. Just five years earlier, it had been 10%.
The most recent figures from the CML, for March 2011, show the average deposit in the UK was 21%.
In actual terms, this means that even now - with house prices continuing to fall - a typical deposit would be £33,809, based on the Land Registry's average house price in England and Wales.
No clear figures are compiled that give any official picture as to whether more potential buyers are tackling these issues by teaming up to buy a home.
However, anecdotal evidence suggests that - as when house prices were exploding - more and more friends are considering joint ownership as an affordable option.Computer says 'No'
Having decided to share the financial burden, as well as the household chores, the three friends in Oxted drew up a plan of how much they could contribute towards the deposit and mortgage payments.
They discovered relatively few mortgage providers, or insurance companies, were set up for multiple ownership.
"It makes trying to find a mortgage harder than for couples. A lot of times when we phoned up, they refused if we tried to add a third name," says Andy Jones, sitting on a garden bench in their well-tended garden.
"The computer did not understand the concept of three people buying together," adds Mr Tippett.
They admit the search for a home took some time - but after about 20 viewings, they found the place that fitted all their criteria.
Honesty with each other should be the starting point for any group of friends embarking on joint ownership, according to Mr Bolton King.
"At a time when a lack of mortgage finance is hindering first-time buyers, opting to buy with a friend or relative can represent a sensible way of getting into the market," he says.
"However, for anyone considering entering into a joint ownership I would stress the importance of a transparent, open relationship."
Key advice from the estate agents trade body also includes:
- Shopping around for a mortgage, including deals specifically designed for joint ownership
- Keeping paperwork in order by ensuring documents are accessible to everyone and signed by all the co-buyers
- Consider making mortgage and bill payments from a joint bank account, rather than making them the sole responsibility of one owner
- Draw up an inventory of items being brought into the house and who owns them, to avoid confusion if somebody moves out
However, arguably the most important piece of advice is to consider the worst-case scenario.
Numerous examples exist of when joint ownership has come to a bitter end among former friends.
The NAEA says buyers should consult lawyers about a co-ownership contract and agree in advance what would happen if one of the owner's circumstances were to change.Trust
Back at the house in Oxted, the three old school friends decided initially on a relaxed approach to this legal process.
"The three of us went down to the pub and sat there for a couple of hours, writing down our list," says Mr Tippett.
"I then went through those with a solicitor."
He came away with a "deed of trust", which outlined exactly what should happen if one of the owners wanted to leave or there were major changes in their lives.
For example, if one of the trio loses their job, the other two will club together for three months to cover his share of the mortgage bill and hopefully allow time for him to get back into work.
The deed of trust also sets out a notice period if one of the housemates wants to leave, to allow time for another buyer to replace him or the other two to continue on their own.
It also states the level of offer they would accept if they decided to sell the property.
For now, they are happy where they are, as joint ownership has allowed them to step onto the first rung of the housing ladder together.