Would you buy a home with a stranger?
Many people would balk at the idea of buying a home with a stranger, yet a new free online property service is offering struggling first-time buyers in London the chance to do exactly that.
If your children are finding it difficult to take the first step - or if you are a mature buyer for whom the mere possibility of getting close to the bottom rung remains a pipe dream - you may be intrigued to find out more.
PropertyBuyersMatch.co.uk describes itself as a "match-making service for those trying to buy their first place in the capital" - although it does insist that there is no requirement for co-purchasers to become romantically involved.
According to the site, the aim is to focus on the personalities and property preferences of would-be property buyers, and not just their financial and professional situations.
"Our purpose is to help those struggling to buy in and around London to meet up with others who are in the same boat - and who share the same values and interests," says the site's founder Emma Leicester. "In the same way as they would on a dating site, users create an online profile, outlining their property and personal preferences and what they are looking for in a co-buying partner."
The site then suggests potential matches based on these criteria.
"Co-buying allows people to pool their resources in order to share the financial burden, as well as the logistical issues around buying a property," adds Leicester.
Several lenders are now lending on this basis, typically accepting up to four people on a so-called "mates mortgage" - although most will usually only take the top two incomes into account when considering affordability.
Clubbing together in this way may seem appealing at a time when property prices are rocketing and a host of lenders are restricting income multiples for first-time buyers, as it will mean aspiring homeowners can get a bigger mortgage – plus more people will be contributing to the deposit.
Approach with caution
However, it's important to tread very carefully before signing up to this arrangement, no matter whether you – or your children – are buying in London, or anywhere else in the UK.
Mike Carter, head of property at Paul Crowley and Co Solicitors, says: "While buying with a stranger may appear to be a practical and affordable solution to getting on the property ladder, the act of co-buying is a business deal and should be approached with caution. There are risks involved, and anyone considering this option should understand the potentially serious implications."
Mark Harris, chief executive of broker SPF Private Clients, adds that buyers should exercise the same caution even when buying with a sibling or friend.
"Living together can be extremely stressful, as there is no escape if things go wrong or if you fall out," he says. "If you are planning on buying a property with a stranger, wouldn't it make sense to rent first to ensure you are compatible? Getting out of a tenancy agreement early is bad enough but a mortgage is a much trickier prospect."
If you - or your children - are set on buying with friends, the key is to be aware of the potential pitfalls.
"The main considerations are practical ones, such as what will happen if you don't get along," says David Hollingworth, mortgage expert at broker London & Country. "You also need to think about what will happen if someone wants to move out sooner rather than later when their careers or relationships develop. If the remaining owner cannot afford to buy out the other person, a forced sale may be the only option."
To pre-empt any trouble, anyone set on co-buying must get all their arrangements formalised in a legal agreement, which sets everything out clearly and also deals with changing circumstances.
"It's important to get all the paperwork sorted beforehand with a solicitor," says Harris. "This should set out what will happen if you fall out, if one of you wants to move out or if some other disaster strikes."
Anyone who enters into a co-buying arrangement – with a stranger or a friend – also needs to be aware that they will be jointly and severally liable.
"This means, for example, that if one party defaults on the mortgage payments, the other buyer will become liable for the outstanding amount," warns Carter. "If you are unable to meet the full mortgage on your own, this could result in the property being repossessed."
It's also important to be aware that multiple owners can be registered as 'joint tenants' or 'tenants in common'.
As joint tenants, all owners have an equal share of the property, while ownership in common means each owner has a separate and distinctive share of the property.
"If you decide to register as 'owners in common' it is strongly recommended that the precise agreement between you and the co-owner is documented in a formal declaration of trust," says Carter.
A declaration of trust will record the amount each buyer is contributing from their own resources, how mortgage repayments are to be apportioned between them, and how the profits on any sale are to be distributed.
This trust may also need to be updated if either owner has a change of circumstances.
"Anyone looking to co-buy should also bear in mind that their co-owner may want to sell or transfer their interest in the property to a third party," adds Carter.
"The remaining owner then faces the uncertainty of establishing a new relationship with that party. In addition, you could find yourself in a situation where the other owner wants to realise their interest in the property by forcing through the sale of the shared home against your wishes. It's vital that you go in with your eyes open and get everything written down and signed at the outset."
Other ways to get on the housing ladder
If you are not too keen on the idea of your son or daughter buying a home with a friend – let alone someone they have only just met – you may want to explore some of the alternative ways to help them get their first set of keys.
One of the simplest options is to offer financial help from 'the Bank of Mum and Dad'.
Adrian Anderson, a director of broker Anderson Harris, says:"Saving for a deposit is hard when property prices keep rising. For most first-time buyers, parents are key in providing a serious deposit."
In the past, guarantor mortgages, which allowed parents to use their own incomes to support their child's mortgage application, were popular. But these fell out of fashion after the government's Help to Buy scheme was introduced.
"Guarantor products have largely been replaced by joint borrower products offered by the likes of the Woolwich and Metro," says Anderson. "With these, a parent can go on the mortgage and property deeds as well as the child."
Alternatively, you could suggest your children move back home with you for a period while they save.
"In the Budget, the Chancellor announced that first-time buyers will get assistance with saving for a deposit via the soon-to-be-launched Help to Buy Isa," adds Anderson. "Under this scheme, if you save £200 a month, the government will add a £50 bonus. The maximum bonus you can 'earn' is £3,000, enabling first-timers to put down a £15,000 deposit with just £12,000 of their own money."
The accounts are expected to become available from the autumn but savers will have to choose between opening a Help to Buy Isa or a cash Isa in any one tax year.
At the same time, there are now a lot more deals available requiring a deposit of just 5%, meaning aspiring homeowners shouldn't need to spend quite so many years back in the family home trying to squirrel money away.
In fact, figures from Moneyfacts show there are now more than 180 deals available at 95% loan-to-value. It's also worth remembering that under the mortgage guarantee part of Help to Buy, purchasers can buy a home priced up to £600,000 with a deposit of as little as 5%.
Other options for first-time buyers include delaying the house purchase for a year or two, so there is more time to amass funds or not holding out for your dream home.This might, for example, mean buying a flat that needs some work and modernising. Alternatively, first-time buyers could look into moving further away from work or the city centre to an area they can afford."
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
These are mortgages to help first-time buyers get on the housing ladder whereby parents or relations stand as security for the loan by guaranteeing to pay the mortgage in the event of the purchaser failing to make the repayments. The guarantor mortgage is taken out in the purchaser’s name, but the guarantor’s income is used to guarantee the mortgage borrowing but this enables the first-time buyer to borrow more money than his or her own income as the guarantor’s income (less any other financial commitments) is also taken into account.