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With high interest rates and house prices putting homeownership further out of reach for many in the UK, buying a house with a friend might help potential home buyers get their foot in the door.
In 2022, a typical full-time worker in England needed to spend 8.3 times their annual income to buy a home, while a worker in Wales spent 6.2 times their yearly earnings, according to the Office for National Statistics. And with the cost-of-living crisis dampening affordability into 2023, it’s no wonder that more people are looking to alternative ways to become homeowners.
“Buying with a friend could be a good option in the current economic environment if you’re not financially able to purchase otherwise,” Sophie Archidiacono, head of sales at Hamptons Estate Agents in Balham, said in an email. “Since Help to Buy came to an end in March 2023, and mortgage rates have increased significantly, it’s much harder for solo purchasers to have the right level of deposit, as well as the income to secure the right mortgage.”
While buying versus renting with a mate might seem ideal, this arrangement comes with some risks. Here are six tips on how to make buying a house with a friend work.
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1. Prepare and discuss your finances
Before co-buying a home, talk to your friend about your respective finances so you know where each other stands. Address your earnings, savings, debts, assets and job goals.
Several months before starting your home search, check your credit score and records for any major issues or errors that need to be corrected, says Aaron Strutt, director with Trinity Financial, a London-based mortgage brokerage. Also, use the interim time to improve your credit score if it needs work.
Next, sort out how much savings you can each contribute to the home deposit. While it’s possible to get a low-deposit mortgage with as little as 5%, having a deposit of 15% or more will get you the most affordable mortgage rates, Strutt says. He also recommends setting up a contingency fund for unexpected expenses like maintenance and repairs.
2. Get clear on your goals and boundaries
It’s true that buying with a friend can economise your short-term living expenses. However, figure out whether you both envision this purchase as a short-term arrangement to save money or as a long-term investment, says Ugo Arinzeh, a London-based estate agent with the Onyx Property team at Keller Williams.
Establish how you will keep your shared space clean and how rooms will be utilised. Set ground rules for visitors, noise levels and other potential sticky issues before they pop up, Arinzeh says.
3. Prioritise what you want in a home
In today’s market, finding a property within budget that you both like could take longer than you think – it could be six months or more, plus another three to four months to progress the sale, Archidiacono said.
Arinzeh, who specialises in working with buyers, says she has her clients create a short list of must-have criteria before looking at homes. And she prepares them to compromise.
“If you are not clear on the front end, you’re going to set yourself up for frustration,” Arinzeh says.
Here are some factors to consider together in potential homes:
- Property type. Are you both looking for a flat? A detached home with a small garden? A terraced home? A cottage? Owning a flat might come with additional service fees, while a detached home or cottage will require more outside maintenance.
- Room sizes. Finding a home with equal bedroom sizes is one of the biggest challenges that pop up when co-buying with a friend, Archidiacono says.
- Space usage. If either of you plan to work from home, look at properties with enough space for a small home office. Also, consider how many bathrooms you want and the floor plan.
- Location. The neighbourhood you choose may be just as important as your property criteria. Factor into your decision your work commute, overall budget and amenities such as the distance to public transport.
While you should both be prepared to compromise, understanding one another’s priorities and red lines can help avoid a future falling out.
4. Choose joint tenancy or tenants in common
When you buy a house with a friend, you’ll decide between a joint tenancy and tenants in common agreement.
A joint tenancy means both parties own the entirety of the property. In contrast, a tenants in common arrangement enables owners to split ownership shares down the middle or in unequal parts (70/30 or 60/40, for example).
If someone wishes to sell later on, joint tenancy requires mutual agreement, while tenants in common can sell their share of the property as they like.
5. Agree on how you’ll split the bills
The monthly mortgage payment isn’t the only shared expense you and your friend will have when you go in on a house together.
Consider who will pay for what and how you’ll keep track of the expenses. Be ready to handle any differences in energy or other utility usage, such as if one person works from home or has a habit of cranking up the heating.
Here’s a look at both the initial and ongoing costs of buying a home you’ll need to budget for and split with a co-buyer.
Upfront home buying costs:
- Deposit.
- Stamp duty costs.
- Survey fees.
- Conveyancing fees.
- Mortgage valuation fees.
- Mortgage arrangement and broker fees.
- Estate agent fees.
- Professional removals costs.
Ongoing housing expenses:
- Utilities (gas, electricity, water).
- Broadband, TV, cable and phone.
- Buildings and contents insurance.
- Council tax.
- Ground rent and service charge (if you live in a leasehold building).
- Service fees (if you live in a serviced building).
- Parking permit fees.
6. Get a cohabitation agreement in writing
Beyond your finances, it’s essential to have a cohabitation agreement in place that outlines each buyer’s responsibilities and acceptable exit strategies when it’s time to part ways.
A solicitor can draw up this legal document, which can vary in detail and cost anywhere from £300 to £4,000, according to The Law Society, the independent professional organisation for solicitors in England and Wales.
One of the exit strategies to consider is a remortgage, which might be the trickiest to navigate. The lender has to run a new affordability calculation to work out whether the person who wants to remain on the mortgage can afford it by themselves, Strutt explains.
“If they can’t, the other person won’t come off,” he says.
Is it worth buying a house with a friend?
If you’re eager to become a homeowner but can’t make the finances work on your own, buying a home with a responsible friend could work in your mutual favour.
However, clear, transparent communication and having an action plan for when one or both of you are ready to move on are key to keeping your friendship – and financial futures – intact.
“The positive financial implication is that these buyers are able to take a step onto the property ladder, which they may not have been able to do otherwise,” Archidiacono said.
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