Mortgages with Friends – How Do They Work?

Mortgages With Friends

With house prices remaining high in many parts of the UK, buying a property with a friend has become an increasingly popular way of getting onto the property ladder.

For many first-time buyers, combining incomes and sharing the costs of home ownership can make buying a property more affordable than purchasing alone. As a result, more lenders are willing to consider mortgage applications from friends who wish to buy a home together.

While buying a property with a friend can offer several advantages, it is important to understand the financial and legal implications before proceeding.

What Is a Mortgage with Friends?

A mortgage with friends is a joint mortgage taken out by two or more people who are not married or in a relationship but wish to purchase a property together.

Each applicant is jointly responsible for the mortgage repayments and ownership of the property. Lenders will assess the affordability of all applicants when considering the mortgage application.

In many cases, combining incomes can increase the amount that can be borrowed compared to applying individually.

Why Buy a Property with a Friend?

Many buyers choose to purchase a property with a friend because it can make home ownership more affordable.

Benefits may include:

• Combining incomes to increase borrowing power
• Sharing mortgage repayments and household bills
• Reducing the amount each person needs to save for a deposit
• Getting onto the property ladder sooner
• Building equity rather than paying rent

For some buyers, purchasing with a friend may be the only realistic way to buy a property in areas where house prices are particularly high.

How Many People Can Be Named on the Mortgage?

The number of applicants allowed will depend on the lender.

Many lenders will consider up to four applicants on a residential mortgage, although lending criteria vary.

Each applicant will normally be assessed for:

• Income and affordability
• Employment status
• Credit history
• Existing financial commitments

How Is Ownership Structured?

When buying a property with friends, there are generally two ways to own the property:

Joint Tenants

Each owner has equal rights to the whole property. If one owner dies, their share automatically passes to the remaining owner or owners.

Tenants in Common

Each owner holds a specific share of the property. These shares do not have to be equal and can reflect the amount each person contributes towards the deposit or mortgage repayments.

Many friends choose to purchase as tenants in common, particularly if they are contributing different amounts towards the purchase.

What Is a Declaration of Trust?

A Declaration of Trust is a legal document that records each owner's financial interest in the property.

It can set out:

• Deposit contributions
• Ownership percentages
• Responsibility for mortgage repayments
• What happens if the property is sold
• How proceeds will be divided

Having a formal agreement in place can help avoid misunderstandings later.

What Happens If One Person Wants to Move Out?

This is one of the most important issues to discuss before buying together.

Possible options may include:

• Selling the property
• One owner buying out the other's share
• Bringing in a new owner (subject to lender approval)
• Remortgaging into a different ownership structure

It is sensible to agree how these situations will be handled before completing the purchase.

What Happens If One Owner Cannot Make Their Payments?

With a joint mortgage, all borrowers are jointly and severally liable for the debt.

This means that if one person cannot make their share of the repayments, the lender can pursue the remaining borrowers for the full mortgage payment.

For this reason, it is important to buy with people you trust and who have a stable financial position.

What Are the Advantages of Buying with Friends?

Increased Borrowing Power

Combining incomes may allow you to purchase a property that would otherwise be unaffordable.

Shared Costs

Mortgage repayments, utility bills and maintenance costs can be shared between owners.

Faster Route onto the Property Ladder

Saving a deposit can be easier when costs are shared.

Potential Property Growth

Owners may benefit from any increase in the property's value over time.

What Are the Disadvantages?

Shared Financial Responsibility

Each owner remains responsible for the entire mortgage if another owner cannot pay.

Potential Disagreements

Differences in lifestyle, finances or future plans can create challenges.

Selling Can Be More Complicated

If one owner wishes to sell but others do not, resolving the situation may take time and negotiation.

Mortgage Affordability Changes

Changes in income, employment or personal circumstances can affect all owners.

Is Buying with Friends a Good Idea?

Buying a property with a friend can be an effective way to enter the housing market, particularly for first-time buyers facing affordability challenges.

However, it is important to approach the arrangement carefully, seek independent legal advice and put appropriate agreements in place before purchasing.

Need Mortgage Advice?

If you are considering buying a property with a friend, a qualified mortgage adviser can explain the options available, compare suitable lenders and help you understand the financial commitments involved before you make a decision.