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This article was published on March 28th, 2022
As house prices continue to rise many people are starting to consider alternative house buying methods including buying with a friend in order to get onto the property ladder. There are many benefits to buying a house with a friend, however, there are several things you need to consider and it is important to think carefully before purchasing a property.
Before speaking with a lender, it is important to have an honest and open discussion with your friend whereby you disclose your finances. You should be honest about your earnings and spending habits and share your credit scores so there are no surprises as you proceed from pre-qualification to pre-approval.
Talk about your long-term plans before signing any mortgage forms or owner agreements. Just because you sign up for co-ownership doesn’t mean you have to live in the same house for the rest of your lives. However, you should set aside a specific period of time. It is also important to consider your choices if you decide to sell the house in the future.
Once you have decided to go ahead with the decision to purchase a property with a friend, there are two types of ownership that you will need to consider, these include joint tenants and tenants in common.
Joint tenancy is a type of ownership in which each person owns the property equally – so each person has a 100% stake in the property’s value. This type of ownership has the potential to be advantageous because it simplifies beneficial ownership. There may be lower legal fees because there is less complexity involved and fewer documents are required. However, this tends to be more popular amongst relatives or couples because even if one person has funded 90% of the costs, they will only own 50% of the property and selling the property requires both parties.
Tenants in common is a type of ownership in which each person owns a separate share of the property. This tends to be more beneficial if you are buying with a friend because ownership is defined in proportion to contributions. If you decide to become tenants in common, you should have a declaration of trust drawn up to protect the money you have invested in the event of a relationship breakdown, if one person is unable to pay their share of the mortgage, or, if you want to sell the property.
A Deed of Trust often called a Declaration of Trust, is a legal document that specifies how the property is owned by tenants in common. Once this document has been established, both parties will know exactly where they stand in regard to ownership.
Before buying a property with a friend, it is important to appoint a qualified solicitor to put together a cohabitation agreement to ensure that your investment is protected. Our specialist conveyancing solicitors have years of experience helping individuals, couples and co-buyers to purchase properties.
We offer fast, friendly and efficient service and you will have a dedicated person dealing with your transaction from start to finish. To ensure that all processes run as smoothly as possible, our conveyancing team will keep in regular contact with you at each stage of the transaction.
If you are looking to buy a house with your friend, you can call and speak to a member of our team on 0330 058 0118 or fill out our enquiry form.