What's the best way for friends to arrange a mortgage together?

Posted on 20 July 2007

I have dealt with Charcol in the past but just have a question.  I am one of a group of five friends looking to purchase a house together. Which is the best way to go about this with regard to arranging a mortgage? We all have varying salaries and varying amounts of money to invest.

Thanks

Hi Hannah,
 
HSBC offer a mortgage for up to four people. Cheltenham and Gloucester will also consider taking more than two incomes into account and they ask that you speak to them about your individual situation.
 
Whilst this is the only way for many people to get on the property ladder there are many pitfalls to group buying. For your own protection it is vital that you put together a legal agreement first that outlines who is liable for what if one of you loses your job or has to move out. Agree rules for if someone wants to let their room because they are sent away for work. Consider guidelines for anyone who wants to have their partner move in.
 
For maintenance and home improvement costs ongoing it makes sense to split everything equally so that there is no argument when it comes to splitting the equity at the end of the arrangement.  I would not commit to more than a two year rate because so much changes in that time: you don't want to be tied in to something that is no longer suitable to your lives then lose your friends over it.
 
You should all take separate legal advice as you will all be jointly and severally liable for the whole debt.  For each other's sakes please agree to take life assurance and critical illness cover or an income protection plan for at least part of the debt each.
 
Best of luck,
 
Katie

Thanks for the advice Katie, I really appreciate it and will take heed!
 
I wonder if you could answer another question for me too.  I have a property I co-own with my ex-partner.  We were planning to sell it and split the proceeds in order to buy separate properties.  However, we have been pondering the idea of renting the joint property out and trying to keep hold of it for a long term investment.  I have been reading various reports on the pros and cons of doing this but wonder how it works exactly.  Both my ex-partner and myself would need our share of the money (will be around £40k each) in order to purchase our own properties (in my case, shared with friends as below / in my ex-partner's case on his own).  Would we be able to release this equity in order to do so, and, if so, is this a sensible idea?  I can't seem to get my head round it! 
 
Many thanks
 
Hannah

Hi Hannah, yes this would count as a Buy To Let remortgage (even though it wasn't a Buy to let before).  Your maximum loan on a BTL is 85% of the property value.  You would have to leave a 15% deposit behind,  the rest of the equity you could release out of the property and split between you to take away. 
 
Your maximum loan is also restricted by the rental income.  The mortgage payments have to be covered by the rent, plus a bit of margin.  Get a few estate agents to tell you what the rental income might be monthly and then use a mortgage broker to will work out which mortgage lender can give you the biggest loan for the best rate -  as lenders all calculate their mortgage/ rental cover with different minimum margins.
 
(there are a few lenders that will lend 90% of the property value but the rates are so high that normally this means that the rent does not cover the mortgage payments anyway.)
 
This means that you will both be walking away with a bit less than the £40k you expect, but that the rest of it is in a property that is paying for itself and, hopefully, increasing in value.

Katie

Categories: Buy-to-let, Shared ownership

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