With property values rising faster than salaries, an increasing number of first-time buyers are teaming up with friends to get on the housing ladder. While it is extremely challenging for a first-time buyer to purchase on their own, two salaries and deposits can go considerably further than one.
The average income multiple required for a first-time buyer is circa seven times, even more in London. With most lenders offering a maximum of four to five times salary, most first-time buyers require a large deposit if they are going to purchase on their own. With two buyers, lenders will take both incomes into account and it may be possible for two people to borrow twice the amount that one person can borrow.
Buying with friends makes sense as you can borrow more while a two-bedroom property won’t usually cost double what a one-bedroom property would cost. Two people sharing a property can also share council tax, utility bills and the cost of furnishing so it is more cost-effective than one person footing the bill on their own.
However, there are downsides to consider. Two single friends may buy together but one might find a partner and want to move on so the other friend has to buy them out or find someone else to buy them out, or will have to sell. If they have to sell it may not be the best time to do so, so they could lose money, particularly once the cost of selling is taken into account and any early repayment charges on the mortgage. On this note, be wary of taking out a long-term fix as the penalties will run for longer: a short-term fix of say two or three years won’t tie you in for too long.
If you are buying with a friend, choose carefully. Discuss your expectations before you buy regarding how long you want to own the property for. Set out some rules; a legal agreement – usually a declaration of trust – is a good idea, particularly if one friend is putting down a larger deposit or making a bigger contribution to the mortgage. This agreement usually includes details as to how the sales proceeds will be split.