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Buying A Share Of A House As It Is All You Can Afford:


Scooter
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Let's all buy a house

With the UK's stratospheric prices friends are clubbing together to get on the ladder, writes Liz Phillips

Now that the average home in Britain costs more than £200,000 the first rung of the property ladder can seem a long stretch up for first-time buyers.

advertisementAs a result buyers are taking less conventional routes to becoming home owners, including inter-generational loans where debts remain unpaid for decades. Another option to make high house prices more affordable is to club together with others to buy a property.

Nearly all mortgage companies will now entertain the idea of lending to friends, siblings or even strangers buying a home together.

Mel Bien of independent mortgage broker Savills Private Finance said: "More lenders are recognising this growing demand, allowing up to four people on one mortgage. This means borrowers can get a bigger loan than they could have done on their own, plus there are more people contributing to the deposit and monthly payments so it should be more affordable."

But not all lenders calculate the amount they are prepared to advance in the same way. Even if there are more than two of you some lenders will only take the two highest incomes into account when calculating the amount you can borrow. This is the case with Northern Rock and C&G.

Others such as HSBC and Britannia will take everyone's income in to account though most limit it to a maximum of four incomes.

Further confusion comes when working out how much you will be allowed to borrow. HSBC and NatWest, for example, will arrive at a figure based on their calculation of how much you can afford, but whereas HSBC will take up to four incomes into account, NatWest only makes this calculation on two incomes and then simply adds one times the annual income of the other two.

With only two of you the choice is easier, as all lenders will treat you the same as any other couple. Among the most generous are Abbey, Alliance & Leicester and Cheltenham who will lend five times joint incomes.

Ray Boulger of independent brokers John Charcol said: "Many lenders have special teams who look at larger loans over £250,000. Professionals buying together could borrow the whole purchase price of their property and get five times their income. A good broker will know which lenders are likely to be most accommodating."

If you have little or no deposit you are likely to have to pay a form of mortgage insurance now called a higher lending charge, which protects the lender if the value of your property falls below the amount of the mortgage.

However, Scottish Widows, Standard Life, Portman, Mortgage Express and Coventry do not levy this charge even on 100pc mortgages. And C&G, Woolwich and Nationwide only charge it on loans above 95pc.

However, there are more potential pitfalls to be aware of and precautions you need to take when buying with someone you're not legally and financially tied to.

David Hollingworth of London & Country said: "Co-buying gives you greater borrowing power and maybe a larger deposit but you've got greater risks. If you're renting together, you can simply walk away if it doesn't work out. It's not as simple as that if you've bought together.

"For a start you will be jointly and severally liable for the mortgage, which means if one of you can't pay then the others are responsible for all the shortfall, not just their share."

So it makes sense to draw up a contract or deed of trust to cover off all the "what if" scenarios. Not only do you need to spell out who owns what share but also what will happen if one of you moves away or meets a new partner he or she wants to live with.

"The exit strategy needs to be thought through carefully," said Mr Boulger. "Usually the co-owner has the option to buy out the other's share. You need to spell out how you will calculate the property's value at that point because your interests are not aligned. You could state that you will take the average of three estate agent's valuations. We recommend that you take separate legal advice."

Most couples buy as joint owners, meaning they both own the whole property, whereas co-owners should buy as tenants in common which states the share each owns individually. One advantage is that tenants in common can will their share to a member of their family rather than it going to the other owners.

Ms Bien added: "The biggest downside of buying with friends or siblings is what happens when things go wrong? If you fall out, it is much more serious than it would be if you were simply renting together.

"Buying with siblings is arguably less risky than buying with friends as the former are less likely never to speak to each other again than the latter. It is always worth renting together for a while beforehand to see how it works out and getting a legal contract drawn up.

"This won't stop disagreements arising but will make things more clear-cut if they do."

The riskiest route is to buy with a complete stranger. Despite that, property matchmaker sites exist to put would-be buyers together. They include gohalves.co.uk, co-buywithme.co.uk and sharedspaces.co.uk.

Co-buying tips

• Try renting a place together first to make sure you can live together. Even if you are best friends the other's personal habits may be unbearable day in, day out.

• Draw up a legal contract, typically a deed of trust, spelling out the deposit you have each put down, the share of the mortgage each is responsible for and how the property will be divided up when you sell.

• Take separate legal advice to ensure your interests are protected. The exit strategy needs to be spelt out to cover situations when one person wants to sell before the other one.

• Own the property as tenants in common rather than joint tenants so that each person owns their share outright.

• Check that your co-buyer is financially sound. You are each responsible for the entire mortgage if one person cannot pay their way.

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or let's not

What do you suggest for anyone entering into this type of mortgage to be aware of?

Do all parties have a clean credit history?

How are the mortgage repayments made if one party was to lose their income?

What are the legal implications if one of the group 'wants out' once the mortgage is up and running?

This is just the 'tip of the iceberg' in relation to the potential pitfalls involved when considering these ill conceived schemes. What happens if a boyfriend or girlfriend wants to move in, or if a couple then have a child?

Dividing up the illusory 'profits' could become equally a headache. On an average FTB (property priced at 150K ) should it rise by 10% this year then a party of 4 would on paper make 3.7K each, before taking into consideration selling fees etc.

Now given that most analysts (such as Nationwide and Halifax) expect only 7% growth at best this year, the paper profits would be negligible and do not assist the FTB in getting on the first rung independently. If prices kept increasing by 7% over four years the percentage growth the co-buyer would enjoy would never keep up with house inflation overall, therfore their ambition of home ownership would never be realised, in fact the first rung would be slipping further out of reach. Individually the co-buyer would enjoy 7% growth in 4 years, yet the market would have moved on 28%!

http://firstrung.co.uk/articles.asp?pageid...&cat=64-0-0

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or let's not

What do you suggest for anyone entering into this type of mortgage to be aware of?

Do all parties have a clean credit history?

How are the mortgage repayments made if one party was to lose their income?

What are the legal implications if one of the group 'wants out' once the mortgage is up and running?

This is just the 'tip of the iceberg' in relation to the potential pitfalls involved when considering these ill conceived schemes. What happens if a boyfriend or girlfriend wants to move in, or if a couple then have a child?

Dividing up the illusory 'profits' could become equally a headache. On an average FTB (property priced at 150K ) should it rise by 10% this year then a party of 4 would on paper make 3.7K each, before taking into consideration selling fees etc.

Now given that most analysts (such as Nationwide and Halifax) expect only 7% growth at best this year, the paper profits would be negligible and do not assist the FTB in getting on the first rung independently. If prices kept increasing by 7% over four years the percentage growth the co-buyer would enjoy would never keep up with house inflation overall, therfore their ambition of home ownership would never be realised, in fact the first rung would be slipping further out of reach. Individually the co-buyer would enjoy 7% growth in 4 years, yet the market would have moved on 28%!

http://firstrung.co.uk/articles.asp?pageid...&cat=64-0-0

Exactly-the pitfalls seem numerous and obvious. Who will buy a share in a house if someone leaves or falls out with the others? This just strikes me as incredibly desperate on a par with people priced out here buying a BTL in Bulgaria (or wherever).

S.

Edited by Scooter
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Is the UK a submarine? Since when has "hotbunking" houses become desirable? I refuse to believe that even one person would consider buying a share of a house unless it was with a spouse. Entertaining such scenarios of stupidity blows my mind...

Keith,

I wish you were correct but regretably I suspect there are some desperate, gullible people out there.

S.

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