The exorbitant cost of buying a property in the early years of the new millennium forced some to think of innovative ways to enter the property market. The concept of co-buying – buying with a friend, family member or even a total stranger for the opportunity to share the costs and benefits of home ownership – came into being in 2006 with the launch of sites such as SharedSpaces.co.uk, and following the popularity of this trend, lenders championing ‘mates mortgages’. Even established property shows such as Location, Location, Location helped to promote this collaborative purchasing option. But is it as good as it sounds or too good to be true for a first time property seeker?
Co-buying enables two or more first-time buyers to join forces, entering into a short-term living and ownership arrangement, to afford a property far nicer than they could hope to buy individually. In a property market that has rocketed upwards at a far faster rate than wages, it’s a viable and valid option to consider. Sharing the deposit, running costs and responsibilities make owning a property more affordable, and it less likely that you will get into financial difficulties through overstretching yourself to buy, but it is important to enter into such an arrangement with the right legal protection and mutual understandings in place.
At the time it was introduced to the UK, co-buying generated a huge amount of interest in the media but there were also those who warned of the potential downsides of this practice. Scaremongers asked what would happen if the person you’ve bought with is not who they say they are, what if they are violent, messy, bad with money? Of course these are valid worries, but these risks can be mitigated with adherence to a few very simple rules:
1. Never buy with a stranger
By all means feel free to co-buy with someone who is not a friend or family member, but before you sign on the dotted line make sure you have taken the time to get to know them, to ask all the right questions, and to meet their friends and family. The more you know about your co-buyer the better.
2. Do not enter into an ‘agreement’ without an agreement
Co-buying is a short-term legal and living arrangement between two or more people. Everyone must be crystal clear about the important elements of the relationship – who is paying what, who owns what percentage of the property value, what happens if one party wishes to leave, how long you plan to share for, etc. Create a contract, or a Deed of Trust, to set all this out so there is no ambiguity.
3. Consider the little things
Who puts out the trash, what happens if someone causes damage to the décor or appliances, what happens if someone is a little late on payments, etc. Think of every eventuality that could cause friction before you agree to buy with one another and agree on what you would do in those circumstances.
4. Respect your housemate
Having parties every night when they are studying for professional exams, inviting friends, family or partners to stay on too regular a basis, leaving the kitchen in a state, not flushing. You know the sort of things I’m talking about – bad housemate things. Don’t do them. A respectful relationship with your co-buyer will mean you have a stronger chance of making the relationship last longer.
But, what if you have followed all the rules, been a good housemate, shared responsibility and formed an agreement, but now you want out, or what if your co-buyer wants out and you don’t, how do you handle this?
The answer is that if your solicitor is worth their salt they should have built this into your Deed of Trust agreement, a step-by-step agreed plan of action should one party wish to leave. The options are usually simple: a suitable purchaser who is acceptable to the remaining party must be found for the seller’s portion of ownership (whether an investor or a new housemate); a suitable tenant who is acceptable to the remaining party needs to be found to cover a portion of the mortgage; the remaining party will have to buy the other out; or the property must be sold and both parties given their portion of the proceeds.
Co-buying is as valid an option today as it was back in 2006, but be careful to enter into such agreements with your eyes wide open. The more you discuss with your co-buyer at the outset, the more scenarios you predict and plan for, and the more that is included in your contractual agreement, the more harmonious the relationship will be, even when it comes to an end.