Would you buy with a friend?

It can be a leg-up on to the property ladder, but sharing a mortgage also has pitfalls.
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The Independent Online

For first-time buyers who want to step on to the property ladder, the idea of buying with friends looks attractive. Pooling deposits and income brings a wider range of properties within reach, and there is the added bonus of a built-in social life.

An Alliance & Leicester survey suggests that 24 per cent of single first-time buyers would like to buy their first property with friends. Men were three times as likely to want to do so as women.

But in practice, far fewer people actually take that step. According to Richard Taylor, head of mortgages at Alliance & Leicester, only a handful of buyers do opt to share with friends. They are more likely to look to parents for help, either by buying jointly with them, by asking them to help with a deposit or asking them to act as a guarantor on the mortgage, or wait until they buy with a partner.

"While quite a few people say they would like to buy together, the simple answer is that they are not," says Taylor. "Their first preference appears to be buying with a partner, which is less risky than buying with friends. There are some products on the market for buyers who do want to buy with friends, but the take-up of these is low."

One reason, Taylor suggests, is that mortgage companies such as Alliance & Leicester and most recently, Nationwide, have moved to lending based on affordability. This allows some first-time buyers who might have thought they needed to buy jointly to go it alone. If someone can demonstrate that they have paid rent that is higher than their proposed mortgage, for example, a lender is likely to take that into account when assessing a loan.

Under the old rules, where mortgages were based on strict salary multiples, such a buyer's application might have been turned down. More lenders are also offering 100 per cent mortgages and fee-free deals, helping buyers who do not have the cash for a deposit or legal costs.

A strong supply of rented property and a relatively stable housing market are also factors. The cost difference between renting and buying is smaller now than it was three or four years ago. Nor is there the urgency that there has been in the recent past to rush on to the housing ladder.

"The state of the property market certainly affects whether people want to buy with friends," says Ray Boulger, senior technical manager at John Charcol, the mortgage broker. "When prices were rising at 20 per cent a year, there was much more pressure to buy as soon as possible. If buying with a friend was the only way, people were prepared to do so. Now the market is more stable that pressure is less strong."

The cost of buying and selling a property is also a deterrent to buying with friends, Boulger suggests. Fees have risen over the past few years, which makes buying a property, and selling it after a few years, an expensive proposition. Most sharing arrangements last between two and three years, so it might not make financial sense.

And buyers who do want to make a joint purchase need to think about how they will end the arrangement if someone wants to move out. Some groups of buyers agree to sell after a fixed period of time, for example three years. In other cases, one buyer might be able to buy out the other's share. It might also be possible for the original buyers to stay on the mortgage, with rent from a lodger covering one person's share. But there can be complications, especially if the mortgage company takes the view that the remaining owners do not have enough income to support the loan.

In these circumstances, Boulger says, the only practical option is to sell the property. This possibility means that it is vital to have the right legal advice. Currently, only one mortgage lender, Britannia Building Society, has a mortgage specifically aimed at sharers that also comes with tailored legal advice.

It is also a flexible mortgage, with no redemption penalties. This, Boulger says, is vital for anyone who plans to buy with friends.

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