Could you live with your best friend?

Published by Laura Howard on 07 July 2010.
Last updated on 23 August 2011

friends sharing home

Being a first-time buyer has never been never easy, but making the first rung of the property ladder can be nigh on impossible these days.

The average cost of a home in June stood at an eye-watering £166,203, according to figures from Halifax - and that's not even the real problem.

Post-credit crunch, mortgage lenders are still insisting that borrowers stump up at least 10% of the property price, which means you have to find around £17,000 plus in cash, including charges such as solicitor's fees and stamp duty.

That's why, for many people, buying with a friend or family member is the only way they can afford to own a home.

Helen Adams, founder of website, says: "Unless you have generous parents who can help you pull together a hefty deposit, joint ownership could be the only way forward.

"Not only does it halve the size of the deposit you'll need to save, but the monthly mortgage repayment and bills can also be shared."

Mortgage lenders will typically allow up to four individuals on one mortgage agreement, although they only tend to use the highest two salaries when calculating what you can afford to borrow. 

It's best to just team up with just one other person though, as it will mean less variables and a smaller amount of risk. But even this is not a decision to be taken lightly.

"Despite the clear benefits of pairing up to buy, it's crucial that legal measures are put in place to protect your investment - and, of course, you have to be absolutely sure that your relationship can withstand the largest financial arrangement of your life," says Adams. 

How do you go about it?

The first step is to have a frank conversation with your friend about what each of you expects from the arrangement. For example, how long do you intend to stay in the property? What would happen if one of you changed jobs, moved in with a partner or wanted to go travelling?

Then discuss realistically what you can each afford to bring to the table, both in terms of the deposit and ongoing monthly costs. If your outlooks are in line, it's time to get serious with the paperwork.

No matter how much you trust your friend, even the most robust of relationships can turn sour when undertaking such a formal commitment, so you'll need to put your business head on, beginning with a simple 'who owns what'.

The level of deposit you put down, combined with your monthly contribution to bills, insurances and general maintenance of the home, will determine the percentage share of the property you own - and this should be clearly put down in writing, says Claire Parker, partner at property solicitors Wilkin Chapman.

"It should be recorded on a declaration of trust - otherwise known as a deed of trust. This is simply another document attached to the property deeds and shouldn't cost any extra in legal fees."

When the property is sold, each party will get their initial deposit back, plus a share of equity that is relative to the proportion of the property they own - or according to any other arrangement you come to. 

Friends buying together should also be recorded on the property deeds as 'tenants in common'. This means that if one of you dies, your agreed share goes to a stated beneficiary.

If you are registered as the 'joint tenants' - more typical for married couples or long-term partners - shares in the home are equal and will fall to the surviving co-owner if one of you dies.

In order to ensure that your stated beneficiary inherits your share, you will need to draw up a will. It's likely you can do this through your existing solicitor, but check out prices first as it can be an expensive route.

You can find a specialist will writer at The Institute of Professional Willwriters ( that lists 300 individual members.

You could also ask your solicitor to draw up a cohabitation agreement. While this document is traditionally more akin to buyers who are in a 'cohabiting' relationship and not married, it can be applied to friends too and basically sets out finer details of an arrangement, such as who pays which bills and what happens to joint assets if you go your separate ways.

Budget in the region of £250 plus VAT for the contract to be drawn up, though the more detail you require, the higher the cost will be.

Will you still be liable?

Ultimately, all the legal paperwork under the sun will not be recognised by the mortgage lender.

As long as your name features on the mortgage agreement, you will be 'jointly and severally liable' for the entire loan. So lenders can chase either of you for all of the loan in the event of arrears.

David Hollingworth, mortgage specialist at broker London & Country, explains: "The problem is that the mortgage money can come out of different accounts, so you don't know if it's being paid in full and on time by your friend." 

You should also think about the borrowing implications if one of you wants out.

Hollingworth says: "There's the option of buying your friend's share of the property, but you'll need to demonstrate that you can afford to, before the mortgage lender will give you the additional part of the loan. If not, you'll probably be forced to sell in order to release the funds."

This is why you need to be aware of any early repayment charges (ERCs) attached to the mortgage for breaking the agreement early.

One solution is to opt for a penalty-free mortgage deal, such as a lifetime tracker that follows the base rate. 

Bear in mind, however, that if interest rates rise, so will your monthly mortgage repayment. If you want the security of payment that a fixed rate offers, you will almost certainly be tied in to ERCs for the duration of the deal.

It's also important to ensure that all bills – as well as buildings insurance – are in both names. When it's your name in the frame, the motivation to cough up is always greater.

10 questions to ask your friend from the outset:

1. What is your main motivation for buying?

2. How long do you intend to stay in the property?

3. Is your job secure?

4. How much have you saved as a deposit?

5. What can you contribute to the monthly mortgage and bills?
6. Do you have any outstanding debt?

7. Could you afford the mortgage if rates went up?

8. Have you got a good credit history?

9. If you have a partner, how often will they be visiting?

10. Would your parents or any other relative be able to help if finances got tough?

10 precautions to take before signing on the dotted line:

1. Take legal advice that is independent from one another

2. Register yourselves as tenants in common, not joint tenants

3. Write a will

4. Draw up a deed of trust stating what deposit you have contributed

5. Consider a cohabitation agreement for the finer points

6. Apply for a copy of your credit files before applying for a mortgage

7. Opt for a mortgage with short or no tie-ins

8. Get buildings and contents insurance in both names

9. Put all bills in both names

10. Open a joint bank account so you can keep track of each other's payments

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