Help to Buy – how buying together with friends can allow you to get on the property ladder even faster…
Posted on 21 November 2016 by
Help to Buy can help you open the door to owning your own home faster. The government initiative helps people who are struggling to find the deposit to buy a home. It's available to first time buyers and existing homeowners who are finding it difficult to move further up the housing ladder - but did you know you could also use the scheme to buy your first home with a friend?
Lorna Hargreaves and Vicki West have been friends since the age of 12 and have been there for each other through relationship break-ups, new jobs and whatever life has thrown at them. Like many young people living in London they had found it difficult getting on the property ladder, but Lorna’s older brother Alistair Hargreaves just happens to be a Mortgage and Protection Consultant at John Charcol, so naturally when she was looking to get on the property ladder she turned to him for advice.
“First-time buyers in the UK have a tough time. According to the Council of Mortgage Lenders the average deposit needed to buy a new home in the UK is £25,970,” Alistair commented. “But there are massive regional variations, the average deposit in London last year was £76,800 last year while in Yorkshire and Humberside it was £17,900.”
Lorna and Vicki both work in London and have good jobs, but even for them the chances of being able to afford a first home on their own were pretty slim. For a first-time buyer earning the average wage in London, a typical mortgage payment is now equivalent to about 60% of monthly take-home pay.
"With property prices rising faster than salaries, we’re seeing that first time buyers are increasingly teaming up with friends to get on the property ladder. Help to Buy can be used by an individual, a couple or even friends. The benefits of joining forces mean that you can you have two salaries and a combined deposit. This makes you a more attractive proposition in the eyes of lender and means that you can buy more while making the overall cost of a mortgage more affordable,” Alistair commented.
Lorna and Vicki, who are both single, decided to buy together a year ago. Lorna had been looking for a property for about a year, having inherited some money she could use as a deposit. Yet with a budget of £120,000, she couldn't find anything suitable or affordable in the capital.
Joining forces with Vicki meant lenders would access both their incomes and combined deposit, allowing them to borrow more. After looking together they settled on a £300,000 flat in Walthamstow, east London. Lorna provided 80% of the £15,000 deposit and they employed a lawyer to draw up a legal contract known as a declaration of trust that stated this would later be taken into account in the sale of the property. Lorna, who works as an operations planning manager said: "We wanted to have something to protect us."
The pair, who were on similar salaries, agreed to split the mortgage payments and bills equally. Through John Charcol and their Mortgage and Protection consultant Alistair Hargreaves, they borrowed £285,000 from Woolwich over a 25-year term. They chose to fix their mortgage rate for two years and completed the purchase in December 2015.
Reflecting back on buying together Lorna commented: "We have our moments when we bicker but it has helped that we have known each other for so long. We already knew each other’s bad habits and we are very honest with each other and if we have problems we say so. It is all about compromise."
While the pair are both single but have talked over the options if one of them were to meet somebody and want to move out. "If one of us wanted to go, we would look to let out the spare room to cover the mortgage," said Lorna.
If one wants to sell to get her share of the money out to buy another property, they would do this according to terms set out in the declaration of trust.
The pair said they chose only a two-year mortgage to protect themselves: "What if one of us meets someone and is trapped in the mortgage?" Vicki, who works in human resources for a high street stationer, said: "We hadn't lived together by this point. After getting to know how the other one lived, we quickly found our roles, which was Lorna cooking and me doing the DIY."
What to consider when buying with a friend:
- Before buying the home have a legal agreement in place and discuss the plan for the future.
- Consider how ownership is structured. This is usually done one of two ways:
Tenants in common or a joint tenancy
- Joint tenancy allows you to spit ownership between individuals according to the terms of their declaration of trust, as they contributed different sums to the purchase.
- Joint tenants have equal rights to a property, which automatically goes to the other owner if one dies.
- Try to get the biggest possible deposit. You are likely to be offered a significantly cheaper rate if you put down 10% rather than 5%. It might take you longer to save but it will cut your overall monthly bills.
- Think through your contingency plans- it is important you enter this type of arrangement with both eyes open, as even the best of friends can fall out over the timing of when one party wants to sell or move out.
For more information on Help to Buy or for advice getting on the property ladder please call us now on: 0344 346 3672
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.