Tuesday, Oct 24, 2006

More on buying a house with friends

ThisIsMoney: Club together to buy a home

Clubbing together to buy property with friends is an increasingly popular way round the problem. HSBC bank says it has seen a 50% rise in applications for group mortgages.

The most important aspect of a joint mortgage is that it is offered on a 'joint and several liability' basis. This means that all the borrowers are equally liable for repayments on the mortgage. If one borrower stops payments for some reason, the remaining borrowers are responsible for the shortfall.

If someone wants to sell their stake, the other owners can choose to buy them out at the market value, or another buyer can be found. In these cases the person leaving will have their name removed from the mortgage. If a buyer cannot be found and the other co-owners cannot afford to buy out their friend then the lender may force a sale of the property.

Posted by little professor @ 10:46 AM (604 views)
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1. talking rot said...

This is a sign of madness. Just how risky is this scheme? 5 people join for a group mortgage and one looses his / her job. Can the remaining 4 afford to pay the increased mortgage rate? Or will the lender cause a Forced Sale. I like the idea of Forced Sales.

Tuesday, October 24, 2006 11:14AM Report Comment

2. Fencesitter said...

This is just prolonging the madness.
Instead of helping people onto the ladder, all that will happen is house prices will go up pushing Group buyers to their limit. The market will then stop until a new scheme can be found.

Why not just let the market go down so that people can buy somewhere in the normal way?

Tuesday, October 24, 2006 11:33AM Report Comment

3. Sm9ai said...

This is just silly. Has anyone at HSBC tried living with a group of friends. It simply doesn't work!

Tuesday, October 24, 2006 11:52AM Report Comment

4. uncle chris said...

I hate to sound so mercenary about it, but if shared purchases do come to the fore then it can only be a good thing for prices in general. By having all todays 20-somethings tied-up, and possibly stuck, in shared accommodation, there will be little capacity for people moving up the ladder. The years I've spent in shared accommodation at University have taught me that you never really know a person until you live with them. That's fine if you are renting in the short-term, but what a thing to find out that you've committed to the long-term with the flat-mate from hell. Seriously, I cannot see why anyone would contemplate buying into this - JUST RENT !!!!!!!

Tuesday, October 24, 2006 12:00PM Report Comment

5. harold said...

Buy a house with a friend? Have they not heard the old adage, "never mix business with pleasure"? I know people who tried this in the late 80's (they too were encourage by desperadoes in the media/mortgage industry) - it didn't turn out well. Even going on holiday with a friend can end in tears, let alone buying a house.

Tuesday, October 24, 2006 12:08PM Report Comment

6. Hazymemory said...

"If someone wants to sell their stake, the other owners can choose to buy them out at the market value, or another buyer can be found"

I guess this hasn't been around long enough or in significant numbers to see part shares being advertised.
Buy 25% of our 4 bedroom house... er no thanks. I guess they'd sell it to another 'friend'.

Sharing rented accommodation is one thing, sharers not doing the washing up/annoying/whatever.. you move out in a week/month.
Fellow mortgage holders a nightmare to live with? tough.

Tuesday, October 24, 2006 12:20PM Report Comment

7. paul said...

This is the financial sanity equivalent of putting a shirt and tie on over a straightjacket.

You're actually losing control of your financial assets this way, not gaining control, as the risk multiplies with each shared buyer.

Tuesday, October 24, 2006 12:23PM Report Comment

8. Cstanhope707 said...

This is going to be a nightmare, when I was renting with students some time ago it was a major hassle just getting the money together for the electricy or phone bill. It will all come tumbling down. By the way did you note on the ITV program the other day the person interviewing the group purchases was from Your Mortgage magazine and she warned them about the fact that house prices can also fall. Interesting as this was the very same magazine that was saying house prices would increase 40% a few weeks ago in the DE.

Interesting how these very people would mock our cousins across the Atlantic for being ignorant and stupid but my goodness our people are cathing up fast.......

Just some advice also to these people when you move out o mummy and daddys house you actually have to pay for electrcity, water and gas it is not free......

Tuesday, October 24, 2006 12:49PM Report Comment

9. geed said...

Clearly the numbers make it more complicated, but what is the difference between a marriage break up and one of the group wanting to opt out?

Forgive me for my ignorance, but surely the home and mortgage would either be taken on by the other members of the group or sold. In this silly, constantly rising market they would even make a few quid after a few months if things dont work out.

I get the feeling the banks/governments will somehow, someway always be able to avoid bringing this market back to reality.

Tuesday, October 24, 2006 12:51PM Report Comment

10. paul said...


The difference is that a marriage is a bankable institution - getting hitched makes you more creditworthy because you are committing financially to the long term.

This kind of arrangement simply allows the unsustainable market to continue on the back of a dubious risk sharing (read "risk-multiplying") scheme.

The banks and government would love the current system to continue indefinitely, but as prices keep rising, the continuation scenario becomes less and less likely. At some point, the high street lenders reach the end of their own credit line, and their underwriters will put a stop to the increasingly exotic lending mechanisms being used.

As Herbert Stein said about economic trends, "If something can't go on forever, it won't."

He's never yet been proven wrong.

Tuesday, October 24, 2006 01:30PM Report Comment

11. Van Hoogstraten said...

History repeating itself.

My brother in law bought a house in west london with 2 then mates. Just before the crash of the early 90s.
They fell out & sold up - they all ended up out of pocket to the tune of about 20k each.

Tuesday, October 24, 2006 01:40PM Report Comment

12. bidin'matime said...

It will all end in tears - and lots of them! But Uncle Chris is right - all this frenzied buying is just serving to exclude thousands from the market over the next 5 years or so, tying them up in financial knots, leaving them disillusioned with property as an investment - and leave the field wide open with bargains for those of us who just stood back and waited.

Tuesday, October 24, 2006 01:41PM Report Comment

13. sovietuk said...

It will be good to move in and mop up after the carnage.

Tuesday, October 24, 2006 01:48PM Report Comment

14. indiablue19 said...

Well, I suppose the banks noticed the huge profits being raked in by slum-lords in Uni towns who get four or five students shacked up in some firetrap at 400 quid per each per month plus utilities; and they thought -- well shouldn't we get a piece of the action? The bankers have "reasoned" -- these people are used to it, they don't mind four to a bathroom after three or four years of it; get in on a going thing and continue the rip after Uni as well. And they further rationalised -- this generation is in monumental debt for student loans with no way out, why not max out their dilemma for them on a completely unworkable and impractical solution, at the expense of the nation's financial stability in general and on behalf of the one noticeable UK legacy to the future: phenomenal institutionalised greed?

And the moral of this story is -- in a place where there is no morality; there is NO morality.

Tuesday, October 24, 2006 01:58PM Report Comment

15. kpjcomp said...

geed said...
> but surely the home and mortgage would either be taken on by the other members of the group or sold.

Well if it was take on by other members, that would increase mortgage payements for the others . And was'nt the whole point of sharing to reduce payments.

And it gets worse if the house do go up.
1. The other people buy this person out at new market price that's gone up, not only does the share of the mortgage increase, but it increases even more because house prices have gone up.
2. His share is sold to another person, again if the prices have gone up, this person will be having to pay more than the people allready there. This could feel a little depressing to find the other people sharing are paying less than you.

Like Uncle C said, the net effect will most likely bring prices down anyway.

Tuesday, October 24, 2006 02:23PM Report Comment

16. inbreda said...

kpjcomp - your scenario is the most positive outcome.

If house prices start falling, one member of a married couple is not going to 'jump ship'. But shared ownership? If one goes, they will have to find money to make up the shortfall. Then trying to find someone to take their place might be difficult - when house prices start falling people don't generally invest all their money in them, and particularly in shared ownership schemes.

Tuesday, October 24, 2006 02:42PM Report Comment

17. kpjcomp said...

Inbreda, yeah..

Unless everyone who is part of the skeme don't commit to the full term, then you loose if house prices go up, and you loose if house prices go down. Unless your the one jumping ship and leaving your friends to sink. .

And I would think the chances of say 4 people sharing and keeping together for the full term of the mortgage is very unlikely.

Tuesday, October 24, 2006 05:25PM Report Comment

18. japanese uncle said...

Roll up, roll up! A bedsit for 100,000 pounds! A property investment opportunity of your dreams !
What if nature called you? Don't worry. There is special balcony for that purpose.
Roll up, roll up!

Tuesday, October 24, 2006 07:59PM Report Comment

19. japanese uncle said...

Revised version====

Roll up, roll up! A bedsit for 100,000 pounds! A property investment opportunity of your dreams !
What if nature called you while you mate is using bathroom? Don't worry. There is special balcony for that purpose.
Roll up, roll up!

Tuesday, October 24, 2006 08:01PM Report Comment

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