The government wants banks to offer “mates’ mortgages” so first time buyers can club together to get on the property ladder. But, as our case studies demonstrate, buying a house with friends has its pitfalls.
So-called “mates’ mortgages” are the latest initiative to get first time buyers on the property ladder.
On the face of it, it sounds like a good idea, as allowing three or four friends to pool their money means they’ll be able to fund the large deposit needed to secure a mortgage in the current climate.
Figures from the Council of Mortgage Lenders (CML) show that the average deposit is 21 per cent of the price of the property.
Plus, while most providers generally only take the two highest incomes into account when deciding how much to lend, a mates’ mortgage will take all incomes into account, allowing groups of friends to buy a larger property.
We spoke to two homeowners who bought houses with friends: here's what they had to say.
Change in circumstance spells trouble
It’s not always the getting in that’s the problem, it’s getting out, says Rhia Lloyd, 28, an administrator from Cardiff, who bought a house with a friend in 2007, before the credit crunch started.
She says: “We thought it would be a good way of both getting on the housing ladder. We were both single and just out of university so we couldn’t afford to buy on our own but decided to look into joint mortgages. “The problem with buying with friends in your early twenties is that your personal circumstances change very quickly. But we had signed into a fixed-term mortgage and we weren’t able to get out of the contract for a minimum of two years.
“So despite each of us wanting to move on and get out of the mortgage earlier than that, we had to wait it out. To add to the dilemma, houses prices fell dramatically in 2008 and we found ourselves in negative equity.”
Similar situation
Matthew Jenkins, 25, an electrical engineer from Chippenham found himself in a similar situation after buying a three-bedroom house with his older brother in late 2007.
His parents funded the deposit and a friend moved into the third bedroom.
He says: “We planned to live there maybe three years then sell on. But two years later things had changed. We’d grown up a bit and had girlfriends and five people don’t live in a three-bed house easily.
“So we looked to move on and resell but the market had dropped and if we sold we would have lost money.
“My brother was happy for me to buy him out but the market had crashed and I couldn’t get a mortgage on my own, even with my parents backing.
“In the end we all moved out and rented out the house. I now rent, as does my brother.”
Homeowner “pre-nup”
Matthew adds: “I think mates’ mortgages are a good idea if everyone is committed and speaks about what would happen if someone wants to move out, like a sort of pre-nuptial agreement.”
Currently, Britannia is the only lender to offer a “mates’ mortgage” with its Share to Buy scheme.
Housing minister Grant Shapps has called on more lenders to offer similar products.
Bank of mum and dad
According to the housing minister, eight out of 10 aspiring homeowners under 30 can't get on the ladder without help from the bank of mum and dad.
Shapps says: “If there are mates who are perfectly capable of paying monthly mortgage payments but are struggling to fund a deposit on their own, there should be straightforward options to unite with their friends and take the first step on to the housing ladder together.”
Grant Shapps reckons that this sort of joint-ownership mortgage could become mainstream. But David Hollingworth of mortgage brokers London & Country thinks otherwise.
Buyers want to go it alone
Hollingworth says: “I think this is niche and not something that will become a mainstay of the first time buyer market.
“Having rented with friends, most first time buyers will be aware of the pitfalls of sharing a home so I think they would look ahead and see the potential problems.
“Also, most first time buyers’ real desire is to buy a home of their own so I think they’re more likely to hold off buying with a friend and work towards being able to afford a property of their own. “
Indeed, house purchases by three or more people between 1983 and 2005 accounted to less than 1 per cent of all first time buyer transactions, according to the CML, totalling no more than a few hundred cases per year.
What do you think? Would you buy a house with your friend? Or recommend this as an option for your son or daughter looking to get a foot on the property ladder? Let us know in the comments section below.
