For many young people getting on the property ladder is just a dream, with spiralling house prices making it impossible for many to buy a home. As a result, more and more are pooling their financial resources with friends to co-buy a property. But what do you need to do and is this a safe way of getting on the property ladder?
Simon Nosworthy, Head of Residential Conveyancing at London law firm Osbornes Law, says there are real benefits to co-buying – where up to four friends or family invest in a property together – but there are also a number of important factors to consider before taking the plunge.
He said: “The main benefit of co-buying is that if you have savings you can invest them in a property now rather than throwing money down the drain paying rent. So instead of buying an entire property you are buying the share of a property. This enables you to get on the property ladder a lot quicker than having to save while property prices go up as you only have to pay a fraction of the deposit. If you pool your resources it could also allow you to buy in a better area than you would otherwise have been able to.”
Mortgages are available for a co-buying arrangement and offer the chance for a group of people to club together to buy a property. People would generally share the cost of the deposit and the legal fees and expenses.
What you need to do
The main thing people need to draw up before buying a property together is a Trust Deed. This sets out the size of the deposit paid by each co-buyer, who owns what of equity going forward, who pays what of the mortgage, the procedures of leaving the co-ownership arrangement and what happens if everyone decides to sell and the financial split on completion of sale.
Simon said: “The most crucial thing is that you get a Trust Deed prepared. If you don’t have this then it’s tantamount to financial suicide as this could lead to disputes and confusion about property ownership. You should also consider preparing a will setting out where your interest in the property will go in the event of your death. If you want to be really organised you could go even further and get a cohabitation agreement and put in who pays for repairs and who pays for the utilities.”
Things to consider
All parties involved in the co-buying agreement are equally liable for the payment of the mortgage, so if one person does not pay the mortgage then everybody else must pay it.
Simon said: “This is something to consider and you need to trust the other people you are buying with. What happens if one of your friends loses their job? You may be able to speak to the lender about deferring payment options such as extending the length of the mortgage, but it’s far from ideal and at the discretion of the mortgage company.”
One of the potential problems of buying with others is when one party wants to leave the property and collect their financial share.
Simon said: “You have to consider what happens when somebody wants to exit the arrangement. If the property has gone up in value then there are a number of issues. If it has gone up 20% then the others have to pay 20% of what? Is it worth what the estate agent says? A property is only worth what somebody will pay for it. The parties will have to agree on a figure.
“Then the remaining parties have to find the funds so that they can pay off the exiting party and they may need to remortgage in order to do this. If they can’t afford to buy them out then they would have to sell the property. This may be seen as unstable situation, but when people live in rented property it’s even more unstable. As a tenant you can be in shared houses when people move in and out or the landlord serves notice to kick you all out.”
Co-buying may not be a long-term arrangement
While co-buying is a great way to get onto the property ladder, for many it may not be a long-term option. Simon said: “The main thing in all of this is that you have to go into this with your eyes wide open and you have to accept that this may not be a long-term arrangement. If you are moving in with friends, then it is probably the case that most will settle down with somebody and want to get a place of their own in due course. But the thing that makes co-buying such an attractive option is that it offers people the chance to get on the property ladder and at earlier and for some when it may otherwise have been impossible.”