Buying With Someone Else

Sharing a mortgage with one or two other people can be a wise move. It allows a number of you to climb on the property ladder, and on a monthly basis it can be a lot cheaper than renting.

Most lenders are happy to let people share a mortgage. The maximum number of sharers acceptable is usually four, simply because the mortgage deed has only room for four names. An application for more than four, lenders say, would need to be related to head office.

If there are two of you, the size of the loan which can be advanced will be calculated as three times the first (usually the biggest) income plus one times the second (or 2.5 times a joint income). If there are more than two of you, the typical income multiples will be three times the first income and one times each of the others. So if one of you earns £20,000 and the other two earn £15,000, the maximum advance will be £90,000 (£20K x 3 + £15K + £15K).

Taking out a mortgage jointly can be a more ungainly process than buying alone. You can only take advantage of first-time buyer mortgage offers if you are all first-time buyers. Plus, each of you will be given a credit rating; so if any of you has had repayment problems on a previous loan or, say, a county court judgement against you, it will be that much harder to find a lender who will advance you a loan.

You are similarly roped together once the mortgage is set in motion. If one wants to move out, he or she will only be released from the mortgage, if the lender deems the other owners capable of meeting the mortgage payments. And should one of you default and the property is repossessed, all of you will be given a bad credit rating.

Bear in mind that is not the lender’s responsibility as to how the mortgage payments are met between you. Rather, it is your collective responsibility to have a formal agreement drawn up by a qualified solicitor as to each owner’s responsibilities. This might seem offensive, particularly if you have a close friendship or a loving relationship, but remember that you are entering into one of the largest purchases you will probably ever make with another person. Just as you would draw up an agreement as to each party‘s responsibilities if you were entering into a business agreement, so you should when buying the roof over your head.

There are two ways to own property jointly. A joint tenancy agreement is usually taken out by two people in a relationship. This type of agreement gives each an equal right to remain in the property, even after divorce or separation. If one joint owner dies, the other automatically gets possession of the whole property.

Where friends are buying, a tenants-in-common agreement is more normal. Each owner has a share in the property with which they can do as they wish. An important implication here is that if one owner dies, his or her share in the property won’t automatically go to the other owners, but to the joint owner’s next of kin or whoever is nominated in his or her will.

Although it is morbid to consider, it is vital that you decide what should happen to your share of the property if you die, lest you leave your co-owners in the lurch. This point can be included in what is called a Declaration of Trust which can be drawn up by the solicitor at the same time as the Tenants-in Common agreement.

 

A Declaration of Trust should also make clear:

• In what proportion the property is held (this will usually depend on the proportion paid toward the purchase of the property)
• In what shares the running costs and bills will be paid
• Who else can live in the property and under what conditions
• How you will agree on the need for maintenance and how you will sort out the payments
• The minimum length of time before the house can be sold for non-urgent reasons
• How much notice is needed if one party is forced to sell urgently, for instance because of a job relocation
• If one party wishes to sell and the other wishes to buy the property, what the basis will be for calculating a fair price and dividing up the costs of selling,
• How any losses on a sale will be divided

 

Obviously, drawing up such an agreement can take some time and may need to be reviewed intermittently. However, it can be a useful test; if you and your prospective joint owners can’t agree harmoniously on these points, then perhaps you should not be buying a property together. At the least, you certainly should not be living together!