Getting a mortgage with a friend: group mortgages
Getting on the property ladder can be a difficult step for many people as gathering a deposit together and meeting monthly mortgage payments may be out of their reach.
In recent years many first time buyers have been buying a property with their friends to reduce this commitment. Such an arrangement is commonly referred to as ‘buying with a friend’ and in more technical terms is referred to as cohabitation.
With a joint house purchase up to 4 separate individuals can be registered on the title and mortgage of a property, combining their deposit and monthly payment monies.
While this is an obvious way for the individuals to cut down their initial and monthly commitments, it should not be done without careful consideration, after all you are entering into a legal agreement where you keeping your end of the deal is reliant on third parties (your friends).
Your first step is to carefully consider each cohabiters suitability to enter such an agreement. Will living with this person cause problems or friction? Are they capable of meeting the commitments? It is generally a good idea to only make a joint purchase if you have lived with this person in the past and know you will be ok.
You must also consider the likeliness of changes in circumstances, for example you wouldn’t have wanted to be a joint purchaser with an estate agent in early 2009 because they were all loosing their jobs! Do they have a partner who will want them to move out or want to move in? these are all important factors to consider because neither party can walk away from the mortgage
The first thing to consider is the suitability of the friend or friends with whom you wish to share. Is living in close proximity with them going to cause any problems? Remember, a mortgage is a commitment that you cannot just walk away from should house problems arise. You could end up living with this person for several years, so it’s important that you think through the situation carefully.
If one of the mortgage borrowers fails to make payments, the payment responsibility falls on the other named borrowers, meaning your financial commitment could increase, furthermore you could get bad credit even though you make your payments on time due to the other parties not paying the monthly commitment.
Though this may seem like too much risk, it can be balanced as if a party stops paying their mortgage payments you could rent their room out or swap their name out for that of another friend. These cannot be done without the agreement of the mortgage provider though so bear this in mind when taking up the product.
Co-Habitation Agreements
As I'm sure you have gathered from the above, if you approach this type of mortgage arrangement sensibly it can provide good benefits. If you feel that this is something for you we have one last recommendation, a cohabitation agreement. This is a legal document which outlines each parties rights and obligations and it is more of a necessity than a recommendation for many reasons including:
The Right To Sell
Finally it should be remembered that any individual has the right to sell a property at any time they choose, this means that your house mate could decide they want out, this would leave you to plug their mortgage gap and potential a percentage of the properties value.