This year, Britain's forward-thinking first-time buyers can celebrate a landmark anniversary. It is a decade since that first, bold generation of young house-hunters decided to stop waiting for property prices to come down, or for their incomes to leap up, and instead resolved to share a mortgage with a friend.
"It was when property prices really began to rocket, in the late Nineties – that was the first time friends in their numbers started to look into alternative ways of buying," says David Hollingworth of brokers London & Country Mortgages. "People found themselves not able to buy on their own, and not content to wait to get married or find a partner to afford somewhere decent."
But with this anniversary comes the start of another trend. These arrangements were never meant to be permanent, and many from that pioneering generation of co-buyers are finding themselves ready to go their separate ways. So how has it been for them? Would they do it again? And what advice do they have for those co-buyers planning to follow in their footsteps?
One such trailblazer is Rachel Evans. Now 46, she bought a three-bedroom cottage in Gerrards Cross, Buckinghamshire, in 1998, with a friend she'd met at work. "Back then, people didn't use the phrase 'co-buying'. When I bought this house with a friend, we just spoke about 'getting a mortgage with a legally unconnected person'," Evans recalls. "It must be easier now – there are so many co-buyer websites devoted to pairing up strangers to get mortgages together, and everyone talks about co-buying as a recognised thing to do."
For Evans, who works in personal finance, the idea simply made sense, even though some people at the time thought it was an odd idea. "If we bought by ourselves, it would have been a small place in Slough, but we both worked in this area, so we thought we'd come together and get a nicer place."
But because the plan worked so well, Evans's co-buyer, having made money on their current house, is ready to move on. Where does that leave Rachel?
"Well, I want to sell this place. I think it would be too complicated to get someone to buy out my friend's share in the house. I might be ready to buy a nice flat in this area by myself. Alternatively, I might co-buy all over again. Though there are a few things that I might do differently. It worked very well for us, but we didn't have much legal paperwork. Things could have gone wrong."
Banks have always allowed up to four unrelated parties to get a mortgage together. By 2006, HSBC found that three-quarters of first-time buyers would consider buying with three other friends. But even if it's just you and one other person, it's worth paying a solicitor to draw up a kind of pre-nup while they're dealing with all the other paperwork.
These sorts of agreements should encompass co-buyers' tenancy status. Most co-buyers will want to specify that they are "tenants in common", meaning that each party holds separate shares in the property. Legal agreement between co-owners should also take into account how much each party is putting into the property, both in terms of contribution to the deposit and monthly mortgage payments. Drawing up such an agreement could cost a few hundred pounds but could save a fortune in legal fees should you disagree with your friend over the figures when you come to sell.
Experts say co-buying can be fraught with these sorts of difficulties and even close friends can find themselves embroiled in financially and emotionally costly conflicts: "I've seen things get nasty, with people losing friendships over a few thousand pounds or even who's the rightful owner of a nasty coffee table. Buying with friends can be stressful and sometimes demands that a third party mediates when it's time to sell-up," says Phil Tennant of Hamptons International Chelsea office.
"You've also got to be frank with your co-buyer about whether or not you stay up until 3am, or whether your family is likely to come round for dinner every other Sunday," says Evans. "These aren't necessarily deal-breakers, but you've all got to know how it will work."
As for money, Evans has learnt some good habits: "You might think that, if you have some savings, you wouldn't want to pay off the mortgage with them unless your buying partner can make an equal payment. But even though it doesn't seem fair at the time, you've got to see it as you and your friend versus the mortgage company. So if you have money to pay off the mortgage, do it. It will benefit you both, bringing down the payments you make each month. But make sure you keep a paper trail to show who put in how much and when. That's what we did, and we haven't argued now we're dividing up the value of the house."
Evans also sounds a note of caution: "We entered into this arrangement as 50:50 partners. If I became a co-buyer again, I'd probably have more money to invest than my buying partner, and I'm not sure how that might affect how it all works – disputes over which colour paint to use might have more of an edge."
And if you're looking to become a co-buyer for the first time, bear in mind that a lot has changed since 1998. In 2008, there are tougher lending conditions, prices can't be expected to race ahead as they have done for the past 10 years, and people are seeing that not everyone who was a co-buyer has a smooth ride when it's time to move on. So getting a mortgage with mates is just one of a range of options you ought to consider. The others are detailed below.
How do you plan to get ahead?
Interviews by Toby Green
Alex Warner-Smith, 25, charity worker
Bought a two-bedroom flat in London with a work colleague for £345,000
Although I co-bought with a colleague, I rent out my room as I wanted to stay living with two friends from university. My colleague and I own the house 50:50 – the sale process was fairly simple, and everything was laid out in black and white by a solicitor. Buying with someone else opens up far more doors – people are scared of buying by themselves, whereas if you buy together you can share a lot of the admin fees.
Jon Macleod, 25, IT professional
Rents with his girlfriend in Forest Hill, south-east London
We know we would like to buy our first house, but at the moment it's nowhere near financially viable unless the prices fall dramatically. It's not a case of waiting until we have more money, we just don't want to buy in this market. I don't think of rent as throwing money down the drain – we recently had a leak in our roof and if that was ours we'd be landed with a massive debt. Renting also gives us the freedom to move around.
Melissa Smith, 21, insurance trainee
Rents in Leeds with her boyfriend, a financial adviser
We haven't bought yet because I don't want a 100 per cent mortgage, so I need £3,000 as a deposit, and it'll take a couple of years to save up. I'd never buy with friends – I don't think it would work as a long-term investment. I don't want everything depending on people's relationships. I'd consider buying-to-rent, but it's probably a bit complicated for a first-time buyer.
Rebecca Fletcher, 21, student
Rents in Malton, Yorkshire, with her boyfriend; they have a 10-month-old daughter
Paying rent does feel like throwing away money, but house prices in my hometown, Malton, Yorkshire, are currently falling, so we're waiting for the right time. We want to save a deposit of £10,000. My parents have said they'd like to help – it will probably be an informal arrangement.
Arnet Addis, 22, recent graduate
Lives with his parents and hoping to do an MA
I really don't mind renting until my late twenties. The kind of sums you hear being talked about are just astronomical and ridiculous – renting seems so much cheaper, why don't people do it for ever? That said, co-buying sounds like a good alternative to just buying with a partner, but it would completely depend on the others all thinking the same as me.
Pippa Woodward-Smith, 26, accountant
Bought a three-bedroom terrace in Southampton for £164,000 in August
I was fed up with throwing money away in rent and at the time it seemed as if property prices were continuously rising. My parents gave me the deposit, which was about 10 per cent. It's an informal loan, which I'll give back when I sell, and they may get a bit extra if the value has gone up. It's all about trust.
What are the other options?
Get a lodger
If you can't handle the thought of risking your friendship by buying with someone you care about, you could buy a place then rent a room out to a complete stranger. At least this way you know who's the boss. If this is your intention, make this clear when applying for a mortgage, as lenders' policies vary on whether they view a lodger as a valuable income stream that will strengthen your mortgage application, or whether it renders your home a commercial property demanding a buy-to-let mortgage. The key figure is £4,250 a year – that's the amount of rent you can charge a lodger without having to pay tax on the rental income. It may not sound a huge amount, but that's about £354 a month – not a bad figure to prop up your mortgage, without entering into a risky joint venture with a friend.
You can advertise for a flatmate on sites such as www.moveflat.com, which charges £20 to owner-occupiers. Be clear in your ad the sort of person you are and the kind of housemate who would best suit your expectations. However, bear in mind that no matter how closely you interview would-be flatmates, there is no guarantee the meek and mild librarian you thought you were going to be living with turns out to be a hard-living party animal. Be prepared to get tough, without being so mean that your lodgers all move out.
Buy with family
There are many mortgage arrangements that encourage young buyers to club together with family members, typically parents. These include family offset arrangements where parents' savings are held in the same account as your mortgage to reduce the amount of interest you pay. However, as Hollingworth points out, these schemes are designed to reduce the monthly costs of your mortgage, rather than boosting your borrowing power.
An alternative type of arrangement is the guarantor mortgage. This involves a family member either covering part or all of a mortgage by signing up to become liable for payments if the borrower defaults on repayments. More lenders have started catering for guarantor arrangements and many lenders may provide the facility even if they don't advertise it, advises Hollingworth.
Other options include a relative simply giving you a deposit as a gift. If that seems a little too generous for mum or dad, they can strike you a deal in which their money buys them a proportionate share of any equity increase you gain on the property you buy. This kind of arrangement can provide great benefits for both parent and child, who may well enjoy a higher return on their savings, and a cheaper mortgage respectively.
But anyone entering into this sort of deal should establish clear boundaries both in terms of what they are putting in, and what they can get out of the arrangement. Also agree how far your parents can be involved in the management of the flat. One woman in her twenties, who understandably wishes to remain anonymous, tells a cautionary tale about her father, who lent her money to buy her place. "My Dad had a set of keys and was in the habit of letting himself in hideously early every Saturday morning, and checking over the flat while I was tucked up in bed. My partner and I renamed the deadlock on my front door the Dadlock."
If you don't want to go in with your family, you could look into sharing the ownership of your home with a housing association. Shared ownership schemes involve buying a proportion of a property and renting the remainder from a registered social landlord. They are available to key workers, social housing tenants, or certain first-time buyers registered with their local authority.
Shared ownership is generally cheaper than paying a full mortgage each month, and owners/tenants can buy increasing chunks of equity when they can afford it. However, eligibility criteria preclude many first-time buyers who are not on low incomes, but still have little hope of affording a place by conventional means.
Contact your local authority to get started or go to www.housingcorp.gov.uk for more information.
You could consider buying an investment property and carry on renting your own home. "Surprisingly," says Hollingworth, "this is not as unfeasible as it seems, even with the ongoing credit crunch."
This might best suit someone who is uncertain where their job might take them over the years, but wants that toehold on the housing market, and someone else to help pay for it. Or perhaps you can't afford to buy in the area where you want to live, but can afford somewhere in the slightly scruffier area down the road, or even a cheaper town hundreds of miles away.
This is only really an option for those with large deposits as most buy-to-let mortgages only allow you to borrow 85 per cent of the value of a property. But at least you might be looking at saving up 15 per cent of a cheaper purchase price, rather than, say, 10 per cent of the purchase price of the property you'd want as your own home.
Being self-employed won't rule you out, but be prepared to prove your income. Hollingworth also points out that mortgage companies lend based on your existing income, and not the rent you think you could charge on a property. Lenders who might look on first-time buyer/first-time buy-to-let landlords favourably include the likes of BM Solutions (www.bmsolutions.co.uk) and Cheltenham & Gloucester ( www.cheltglos.co.uk).
Buying out a friend
If you have friends who have bought a place together and one wants to move on, you could consider stepping in and buying that proportion. The advantage here is that you can see how the arrangement worked out for them. The same practical issues affect this transaction as they would when one friend chooses to simply buy-out their former co-owner.
Among the first big issues to deal with concerns the price you will pay for your share of the property. The value of a property is notional until someone pays it, so view estate agents' valuations with a pinch of salt. Ask three to five estate agents to value the property, compare your home with similar properties on the market and check out recent sold prices in the area at websites such as www.ourproperty.co.uk.
Seeking independent mortgage advice is recommended to work out the most cost-effective way of financing the transaction, particularly if the current owners are still within a fixed rate period and face redemption penalties if they switch mortgages.
Ten years ago, co-buying gave first-time buyers a lifeline. As she prepares to go it alone, one early adopter tells Helen Monks how it worked out – and what she'll do differently next timeReuse content