Buying property by yourself can be extremely difficult with mounting costs and often unachievable deposit requirements. It is for these reasons that buying a home with a family member or friend is becoming increasingly popular so that people can get on the property ladder. The purpose of this blog is to set out the advantages of doing so as well as some of the disadvantages and finally, things to consider before deciding to go down this route.
One of the main reasons why people will want to consider buying a home with someone that they know well is due to the property prices being so high. Unless someone has a considerable amount of savings behind them, it is unlikely that they will qualify for a mortgage. Rather than solely relying on one person’s savings and income; income and savings from two people is of course better. There will be double the amount of savings and double the income available which then will be able to be reported in the mortgage application. It is therefore more likely for the mortgage application to be accepted.
For some people, having the financial responsibility of making mortgage payments and bills each month can be daunting, especially during these uncertain times where unemployment across the country is high, as a result of the pandemic. By being co-owners of a property with someone else, there is another person to help shoulder the financial responsibilities which can ease pressure and stress. If one of the owners unexpectedly becomes unemployed, there is another person to lean on during difficult times to help meet the monthly outgoings.
In addition, there are not many people who would like to live alone. It can be isolating and lonely which can have a huge impact on daily life. Imagine how difficult it would be to be living alone during lockdown when there is no opportunity to go out and see friends as one might normally do. By living with someone who is trusted there are tremendous social benefits, certainly if you enjoy the same things and have shared interests.
Any property purchased will turn into an investment over time as properties increase in value as years go by, works are usually done on properties to modernise them, and improvements to the properties structural integrity or living standards are usually carried out. Owning a property with a family member or friend will give you both an opportunity to benefit from the investment in a secure way. Family members and friends who are trustworthy are unlikely to drop out of your life and can therefore be a more secure way of owning a property, when compared with ownership with a partner, for example. As much as we don’t like to think about it, sometimes relationships break down and even long-term partners can separate in an acrimonious way. It is not as common however, for long term friendships or family members relationships to break down so acrimoniously.
Following on from the previous paragraph about break down of relationships, of course this is one of the big disadvantages of owning a property with someone else, there is always a risk of a breakdown of relationship or a fall out. As stated above, it is not as common for family members or friends to fall out often or be aggressive towards each other if a break down happens. Despite this, it is still something to think about and be aware of. People that are thinking of jointly owning a property with a family member or friend will need to consider what will happen if they no longer get along with their friend or family member and how they would deal with that situation.
Now, sharing daily responsibilities as well as financial costs can be a huge positive for some people, nonetheless, it can also be a negative. The reason why it can be a negative for some people is that there is not full control over the financial outgoings or daily responsibility, as these responsibilities are shared. This means that ultimately, a lot of trust needs to be placed in each other as they are both relying on the other to make the required monthly payments, whether that be for the mortgage, food, utility bills, etc.
If one person falls behind on their payments or cannot meet the bills for a particular month, the other person may be liable for any debts incurred as a result of mis-payment, even if they have already paid their share. Due to the pandemic, many people have lost their jobs unexpectedly and this is a worry that everyone has, however, when you are relying on someone else to share the financial burdens of owning a property, all parties involved in the purchase must think about what safety net they have available to rely on in this type of situation. If there is no safety net available, then things could become extremely stressful if the situation did occur. This type of situation can, in extreme circumstances, lead to bankruptcy or losing the property due to it being repossessed and this can have severe consequences on peoples’ jobs if they are employed in a particular area, such as accounting, law, medicine, etc.
A final potential disadvantage is in relation to the future plans for the property. It is important to have an understanding right from the start before even looking at properties what your friend or family member’s intentions are with owning the property. You may not agree with each other’s future plans, for example, one may see it as a long-term home and the other see it as a rental property to gain income from. The other element to think about is what would the arrangements be if one party went into a relationship in the future, what would happen if one party wanted their partner to move in, etc. These elements should be considered and thought about even if they seem remote at the time of purchase because they can have a detrimental impact in the future.
Once the agreement has been made to purchase a property together and those involved have a clear understanding as to the division of financial responsibilities as well as daily living responsibilities and future plans, the next element to think about is the legal ownership.
Firstly, when buying a property, it does not necessarily need to be owned fifty-fifty and can be owned in unequal shares. The reason for owning a property unequally usually relates to the amount of deposit contribution that is made or if one person is going to be contributing more financially to the property than the other. To ensure that the property ownership and the contributions made are secured, a Deed of Trust will need to be made. A Deed of Trust will mean that additional legal costs will be incurred, and this is a cost to prepare for.
Secondly, how you own the property is very important. Properties can either be owned as Tenants in Common or Joint Tenants. Despite the word ‘tenants’ being in the name, you are of course not tenants of the property and are owners. The term Tenants in Common refers to ownership where the parties own a share of the property individually, whether that share is equal, or unequal is a matter to be agreed upon.
The affect of owning a property as Tenants in Common, is that when the parties decide to sell the property, the division of proceeds will be split individually according to the percentage of ownership held. In addition to this, if a party dies, their share of the property will pass according to their Will and therefore will not automatically pass to the surviving owner.
The affect of owning a property as Joint Tenants on the other hand, is that the parties own the property wholly and equally. There are no individual shares of the property and instead the entire property is owned by both parties. The most significant difference between the two types of ownership is that if a party dies with the property being held as Joint Tenants, the property will automatically pass to the surviving owner, regardless of what may be in the deceased’s Will.
Finally, an additional factor to consider is in relation to mortgages. Not all lenders are willing to lend to people who are buying a property as friends however, with this option becoming increasingly popular, a number of lenders do now offer this type of mortgage but there may still be a limitation of options to choose from.
It is very important to note that with any mortgage, the holders are ‘jointly and severally’ liable for the mortgage debt which means that if one person does not pay their fair share of the mortgage fee, the other party will be liable for the shortfall even though they may already be paying their share of the amount.
If you are considering buying a property with a family member or friend, we are here to help. Our team of solicitors can provide you with expert legal advice and take the stress out of your purchase. Call us on 0800 368 5102 or complete and online enquiry form below.