First-time buyers may well be tempted by falling house prices, but cautious lending and unobtainable deposits have resulted in little opportunity to make that first step on to the property ladder. However, those struggling to raise funds could find that a little help from their friends, by way of a joint-ownership mortgage, is the key that unlocks the door.
In the UK, a maximum of four people can be named on the deeds of a property, and for some, the chance to pool funds and potentially arrange a bigger mortgage is the only way to afford that first house. Even those without friends to link up with can use specialist co-buyer websites such as Sharedspaces.co.uk and Co-buyWithMe.co.uk, which are designed to match home-hunting strangers.
There are significant savings to be made beyond just the mortgage itself. Friends can share costs across the board – from the deposit and stamp duty to legal fees and survey costs. This means less time spent having to save up, so the opportunity to get on the ladder will come much sooner than would be possible otherwise.
In the current climate, however, with greater potential for disruption to income and the expectation of a big increase in unemployment, lenders may simply be too wary for joint ownership to be a viable option for first-time buyers. "This is only going to be an option in a relatively small number of cases. Lenders are generally cautious and they might also be concerned about how an agreement between a large number of people would be maintained," explains Bernard Clarke at the Council of Mortgage Lenders.
But specialist broker Sharetobuy.com reckons that while this sector may be small, it is still viable, despite the financial crisis. "We were told that sharing to buy would stop when the market soured, but this hasn't happened," says James Cartlidge, mortgage manager at Sharetobuy. "We feel there is strong, pent-up demand from first-timers."
A joint mortgage does not automatically equate to significantly enhanced buying power. "The sticking point could be that some lenders will not allow all incomes to be considered. They may only use the top two incomes to determine the level of available borrowing," says David Hollingworth from broker London & Country. He adds, though, that in theory lenders will treat two friends buying together in the same way they would a co-habiting couple.
There are risks to co-ownership, which will be heightened for anyone owning with strangers. With house prices heading south and no sign that they will pick up any time soon, friends could risk substantial losses when one of their number decides to go their own way.
"The short-term nature of this kind of arrangement and the current direction of property prices means there is quite a high likelihood you'll end up with less equity than that which you started with," warns Mr Clarke.
Another possible snag is that each co-owner is considered to be jointly liable for the mortgage payments. This means that if one party misses a payment, the other owners are all seen to be equally responsible by the lender. "If you're going to purchase a property with someone else, and buying in both names, you would be wise to have a written agreement in place," says Helen Lawton, a partner at legal firm Clayton Mott & Lawton. A solicitor can draw up a "declaration of trust" to cover the entire process, from each person's deposit contribution to selling the property in the future.
Another piece of advice is to make a will. "This is sensible as your co-owners know what would happen to your share of the property. This may well be another thing to add to the contract," says Ms Lawton.
There can also be complications when applicants have paid varying deposit sums, so it should be clear precisely how much each person has contributed. If unequal, the contract should state the proportion that each deposit amounts to in terms of the value of the property.
One common concern for anyone looking into joint ownership is what happens to the property if someone decides to move out. One option is that the co-owner rents his or her share of the property to cover their mortgage repayments; another is that they offer to sell their share to the other owners. If this isn't an option, it could be offered to an outside buyer, who would become a new co-owner.
As a last resort, with no one available to take on the remaining share, it may be that the whole house will need to be put up for sale.
For peace of mind, co-owners may decide to oblige each party contractually to hold insurance – usually an accident, sickness and unemployment policy – to safeguard the mortgage repayments should any of them be made redundant or fall ill.
It may also be useful to set up a joint bank account from which the mortgage and other shared expenses can be paid. An inventory could also be kept, detailing who has paid for what, so that when it's time to sell up, there are no arguments over the ownership of furnishings.
A three-way split and they're on the ladder
Three is not a crowd as far as Danial, Wesley and Sian are concerned. The first two are life-long friends and Sian has been Danial's partner for a year. Together, they bought a two-storey detached home in North Wales recently for £215,000, making the purchase after they had rented the house next door. They had realised the mortgage payments would scarcely be different to their rent and so decided to use Sharetobuy.com to help them find a loan.
Danial says there were difficulties at first: "The process was slow due to the constant interest rate changes meaning that mortgage products were hard to pin down."
Persistence paid off, though, and they were able to secure a 90 per cent mortgage from Royal Bank of Scotland with a deposit of £35,000.
Sian and Danial plan to buy Wesley's share a few years down the line and take on the whole property between them. "Sian and I would have struggled to make the mortgage repayments by ourselves, but with Wesley on board we have all been able to get our first foothold on the property ladder," says Danial.