Mates urged to club together to get that elusive first mortgage

Banks are offering more deals to purchasers who choose to buy with friends or relatives. But there are pitfalls, warns Chiara Cavaglieri

Lenders have been urged by housing minister Grant Shapps to offer "mates mortgages" to encourage more first-time buyers (FTBs) into the market.

Pooling together funds to meet the current deposit demands could be an ideal way to get a first foot on the ladder. But is buying with a friend really a good idea?

For anyone unable to access the Bank of Mum and Dad, the current market is a minefield of lukewarm lenders and hefty deposits. The average age of FTBs buying without help from family has now hit 37, according to government estimates, and the average deposit reached £26,582 in the first quarter of 2011, according to the Council of Mortgage Lenders (CML).

During boom times, joint ownership mortgages were often just a way for buyers to increase their spending power, but with today's strict lending conditions, they could prove to be the only lifeline for some.

"Buying with friends or family can be a way of lowering the amount of deposit you need and sharing mortgage and running costs." says Helen Adams from Firstrungnow.com. "In some areas it may enable buyers even to leap-frog the first rung of the ladder to a larger property – but not in many. Another advantage is you have an in-built social life. In many case friends have rented together before – so why not purchase together?"

Having several people contributing to the deposit and mortgage is in many ways a straightforward way to make your first home affordable. Indeed, it could be the only way for some without having to save until they are into their thirties. As well as the mortgage itself, friends buying together get to share all of the other financial burdens such as legal fees and survey costs, which quickly add up.

The problem remains, however, that lenders are still cautious, and even if you do find a willing and affordable lender, you may not be able to borrow as much as you hope. Lenders are unlikely to consider all incomes, with many only using the top two earners to determine how much they will lend, but it is worth investigating as this will vary from one bank to another. For example, Santander will take half of the income from third and fourth applicants into account, and others may have an element of discretion to use a third income if there is only a small margin.

Britannia is another major player in this field with its "Share to Buy" mortgage. This was launched in July 2004 and allows up to four friends to buy together. The mortgage is available up to 90 per cent loan-to-value (LTV) and the building society will lend at up to 3.75 times the joint income of two applicants; for groups of more than two, it will either lend at twice all applicants' incomes, or 3.75 times the two highest earners.

"We know how difficult it can be for first-time buyers to get a foot on the property ladder. We've seen a lot of siblings or groups of friends who have chosen this type of mortgage," says James Hillon, head of mortgages at the Co-operative Bank and Britannia. "As well as making their first home more affordable it also gives a lot of flexibility – there is no limit to the overpayments they can make, plus there are no penalties or tie-ins."

Even if you don't have anyone in mind to buy with, you can find like-minded people on agencies set up to bring co-buyers together, such as Sharedspaces.co.uk, Jointequity.co.uk and Propertyfriends.co.uk.

Whichever route you take, with any joint ownership mortgage, legally you will either be "joint tenants", or "tenants in common". The former is typically suited to married couples or long-term partners, and under this arrangement neither party can sell without the other's agreement.

If one party dies, their share is automatically passed on to the remaining owner. For friends buying together it is sensible to be "tenants in common" instead, which means that each party can sell their share while alive, or have that share passed on to their estate if they die.

Although it shouldn't have any impact on the lender's decision whether you are friends or relatives buying together, it could be a factor when deciding whether joint ownership is too risky a move.

"It won't make any difference on the status of the borrowers whether they are siblings or just friends, just as there is no difference between assessment of married or unmarried couples," says David Hollingworth of the mortgage broker London & Country. "What it does highlight, though, is that the commitment is the same for all and the friends will be jointly and severally liable."

As everyone is responsible for the mortgage, if one person defaults, the rest of you have to cover the shortfall and the lender is free to chase one or all for any overdue payments. With FTBs it is perhaps more likely that circumstances will change, whether it's someone getting married, losing their job or relocating.

Furthermore, if anyone decides they want out and property prices have fallen there is a danger you could all end up with less equity, unless everyone is in a position to hold on to the property until conditions improve.

"The main issue is simply sharing with others; it is hard enough renting with a group of friends without committing yourself to something as difficult to get out of as a mortgage," says Melanie Bien, a director of independent broker, Private Finance.

With so many potential problems, it is vital to seek legal advice. A solicitor will guide you through the buying process and help arrange a declaration of trust setting out how much each person has contributed and how the equity will be split. A cohabitation agreement should also be drawn up to cover anything from responsibility for house maintenance and home insurance, to how to value the property if anyone wants to sell and any rules concerning partners or tenants moving in.

Above all, you will all need to ask each other some frank questions before making your decision.

"A mortgage should be viewed as a long-term commitment, usually over 25 years," continues Ms Bien. "But what if one of the friends meets someone and wants to buy with them – would they be able to get out of their commitment to their friends? Will the others buy out the leaver's share – and would they be able to afford to?

"What happens if one party loses their job and can't afford their share of the mortgage? The others would be liable for the shortfall, which they may ill afford."

Case Study

Thomas, 26, and Christopher Akhurst, 25, London

When brothers, Thomas and Christopher, decided it was time to leave home in North Harrow, it made sense to buy together.

"I looked for maybe a year before we both started looking together," says Thomas. "I realised that to get anything decent I would have to save for a very long time on my own. After living together at home for two years when Christopher got back from university, we started looking for a place together."

The pair moved into their £235,000 two-bed flat in Ruislip, north-west London, in January with a joint ownership mortgage from Britannia. Having saved up their money while living at home, Thomas, a mechanical engineer, and Christopher, an internet analyst, were able to put down a £40,000 deposit, which they split equally between them.

For Thomas, buying with family was an easy decision and he is happy that should either want to leave, the other can buy them out and can remortgage if necessary. But he says he wouldn't have felt as comfortable making such a big commitment with anyone else.

"I can trust my brother. I know his financial background, so there aren't going to be any skeletons in the closet."

Arts and Entertainment
filmPoldark production team claims innocence of viewers' ab frenzy
Life and Style
Google marks the 81st anniversary of the Loch Ness Monster's most famous photograph
techIt's the 81st anniversary of THAT iconic photograph
News
Katie Hopkins makes a living out of courting controversy
people
News
General Election
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: Pricing Analyst

    £30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

    £21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

    Ashdown Group: Head of Client Services - City of London, Old Street

    £45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

    Why Mohammed Emwazi chose Isis

    His friends were betrayed and killed by al-Shabaab
    'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

    Open letter to David Cameron

    Building the walls of fortress Europe has had deadly results
    Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

    You don't say!

    Tory candidates' election tweets not as 'spontaneous' as they appear
    Mubi: Netflix for people who want to stop just watching trash

    So what is Mubi?

    Netflix for people who want to stop just watching trash all the time
    The impossible job: how to follow Kevin Spacey?

    The hardest job in theatre?

    How to follow Kevin Spacey
    Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

    Armenian genocide and the 'good Turks'

    To continue to deny the truth of this mass human cruelty is close to a criminal lie
    Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

    'Lou needed care, but what he got was ECT'

    The truth about the singer's upbringing beyond
    Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

    This human tragedy has been brewing for years

    EU states can't say they were not warned
    Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

    Women's sportswear

    From tackling a marathon to a jog in the park, the right kit can help
    Hillary Clinton's outfits will be as important as her policies in her presidential bid

    Clinton's clothes

    Like it or not, her outfits will be as important as her policies
    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders