Buying with friends or family

If you are wanting to buy a home but cannot afford one then purchasing a house with a friend or family member can be a potential solution. However, there are some pros and cons to consider.

 

Pros: -

• Able to pool resources such as deposit and share mortgage repayments;
• Able to share bills such as council tax, insurance, utility bills, repair fees and maintenance/renovation costs, it is suggested a separate bank account be formed to cover the properties outgoings (ideally via direct debit) and for each person to deposit agreed funds to cover their share; and
• Furniture and other items such as a TV may be already owned by you or your friends/family – it is suggested that an inventory is made of each item so there is no confusion should the person wish to sell the item, or moves out and intends to take it with them.

 

Cons: -

• You may simply fall out with friends or family;
• Possible change in circumstances, put simply your family/friends’ situations may change, for instance, they may lose their job, or be offered one elsewhere. This may mean they need to either sell their share to yourself (if you can afford it), another person in the buying group or may be split between several remaining residents. Ultimately, if a solution cannot be found then the property may need to be sold;
• Paperwork, there would need to be a formal, legally binding agreement created so that everyone is clear of their liabilities and responsibilities;
• Shared responsibility, remember that the lender will expect you to make up any lost mortgage payments; and
• Tensions can easily mount over things like laundry, chores, friends staying over, pets and so on, it is suggested that a set of “house rules” be created to address any such issues.

 

This leaves you with what the persons share is actually worth.

Working out a fair settlement for someone wishing to liberate their share
	Example 1 – house bought in 1990, 3 buyers, no mortgage	Example 2 – house bought in 2015, 3 buyers	Example 3 – brand new house, 3 buyers
Property value (check on Rightmove / Zoopla	350,000	350,000	350,000
Less 5% (a buyer is unlikely to pay full price)	332,500	332,500	325,200
Less 5% (allows for the estate agent and legal fees) – leaves what you “clear” from the sale	315,875	315,875	315,875
Less outstanding mortgage (you are then left with the equity in the property)	0	300,875	314,000 (£350,000 less a 10% (£35,000) deposit and £1,000 legal fee)
Remainder	315,875	15,000	1,875
Divide by the number of persons involved gives a fair “buy out” price of	£105,291	£3,000	£625

 

The above are purely illustrative

Example 1 would be for a trio who bought the house long ago and have paid off the mortgage,

Example 2 would be for a trio who bought the house fairly recently and have built up some equity,

Example 3 would be for a trio who bought a new house, each putting down 1/3^rd of the deposit (£12,000), but their share would only be worth £625, hence a loss of £11,375. The reason is that the property has not had any time to build up any equity.

It is strongly suggested that each person take out life and critical illness insurance so that if a disaster happens their side of things are covered.

 

How we can help

Lestons can help you with drafting a fair agreement so that everyone knows what is expected, it would also include sections detailing what happens if a person wants to leave the buying group. By having a written agreement, we can look at every aspect, including potentially contentious issues and allocating suitable repair and renovation budgets etc. To obtain our help simply create a case by clicking on the link at the top of the page, activated by the link at the top of the page, should you wish to start a case the caseworker will send you the suitable payment link.

 

Please note your caseworker can only give generic advice, their role is to prepare your details for handling by our legal team and to act as your point of contact, they will also issue you with your Password and PIN, these will be needed to log onto your client dashboard. From your dashboard you will be able to manage and view every aspect of your case, upload documents, images, files etc.