Shared mortgages with friends: top 10 tips on buying with friends to get on the property ladder

The biggest hurdle for hopeful London homeowners is coming up with a huge deposit. Shared mortgages can make it possible to own the property you may not otherwise be able to afford - if you do you homework. Here's the guide to getting it right...

Young Londoners hand over half their income to a landlord, while home owners spend a quarter of their wages on a mortgage, according to the Government’s latest English Housing Survey.

Clearly it makes more financial sense to buy. Taking the plunge with friends or relatives — and sharing the debt — can make it possible to own a home you would not otherwise be able to afford, as long as you do your homework.

The biggest hurdle for London first-time buyers is the size of the deposit required, currently £72,000 — more than double most young Londoners’ annual salaries. And then there is the rigorous examination that has to be undertaken to qualify for a mortgage.

Most lenders, including Barclays, Woolwich, Lloyds and NatWest, allow up to four friends to get a mortgage together. The share each owns depends on how much they can afford.

New websites, such as www.shareamortgage.com and www.propertybuyersmatch.co.uk, match buyers looking to purchase a share of a property.

But Ray Boulger, of online broker Charcol, warns against sharing with a complete stranger. “It’s a mad idea,” he says. “You should get to know the person you are going to buy with, and rent together for at least six months to make sure you are compatible living together. Mortgages are very expensive to get out of.”

Mates rates

Best friends Jim and Rohan, both 33, wanted to move out of their family homes and bought a two-bedroom flat together in New Barnet for £197,000 nine years ago.

They put down a joint deposit of £30,000 and instructed a solicitor to draw up a Declaration of Trust to ensure that if anything happened to either one of them, their share of the property would be left to their family. 

After living together for five years, the pair decided to go their separate ways but keep the flat. 

They let their flat for £1,150 a month, which more than covers their £800 monthly mortgage and service charge. The flat is now worth £300,000 and they plan to take out equity next year so they can each invest in their own place. 

“We are happy to keep the flat as an investment for the foreseeable future,” says Jim. “It’s been a great experience, very successful, and we are probably closer friends for it. It is really helpful to have somebody to split the bills with.” But not everyone is so lucky.

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Best mates Jim and Rohan bought this two-bedroom flat in New Barnet, north London, for £197,000 five years ago. It's now worth £300,000.

Family misfortunes

When digital marketing manager Maria Tapis, 33, bought a two-bedroom maisonette in Cockfosters with her sister Elena, 31, the survey they had done didn’t pick up on the property’s damp issues, which are still ongoing.

Two years ago they had a burst pipe and had to move to a hotel for three months, paid for by their insurance company, while the flood damage was sorted out. Then they had a gas leak.

The sisters are paying for the damp to be corrected and fixing the leak has so far cost them £700.

They have now set up a repairs fund and pay £50 into a joint bank account each month as a cushion for future issues.

When they eventually move out, they plan to keep the property as a joint retirement asset, though such long-term plans can change. That is why a legally binding Declaration of Trust is important.

The Declaration of Trust should set out how and when you will approach selling the property, and the method for one party buying the other out — including how to get the property valued and how the legal fees and sale proceeds should be divided.

Top 10 tips for buying with friends

1. Rent first with the person you have chosen to buy with for at least six months, to be certain you will get on.

2. All parties should get a credit report, as any black marks on it may jeopardise mortgage approval.

3. Create a Declaration of Trust (which will cost about £350) in which you agree how everything is shared, including ownership, bills and legal fees.

4. If you are putting in unequal deposits, work out the proportion of the property each deposit equates to — and agree how proceeds will be split.

5. Buy as “tenants in common”. This means each buyer can own a different percentage of the property and dispose of their share independently.

6. Set up a joint bank account for the mortgage (most lenders require this) and other joint expenses.

7. Compare mortgage rates. One bank might offer you a lower interest rate, but charge high fees, and vice versa.

8. Keep records of all official documents in a file.

9. Keep an inventory of ownership and shared contents in the home.

10. Make a will.


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