A little help from your friends: the door opens for first-time buyers

Clubbing together with friends, or maybe even strangers, is one route to home ownership. But will mortgage lenders play ball? Chiara Cavaglieri reports

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.

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Stockbroker

    £Basic (OTE) + Uncapped Commission: Guru Careers: A Stockbroker (qualified / p...

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Guru Careers: Application Support Analyst / 1st Line Support

    £25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence