May 17, 2019 8:49 am Written by

Buying Property Together with Friends and Family

Buying Property Together with Friends and Family

Climbing the property ladder, rung by rung, but getting on the first rung can be a challenge.

You need to save up a deposit, find the right property, and also get a mortgage.

Which all sounds simple in theory, however it can be more complicated.

Mortgage lenders want to approve mortgage loans, that is how they make money, and they know the challenges first-time home buyers face. So many lenders have put together new types of mortgage loans to help those just starting out.

Mortgages with little or no deposit required, and also loans where family members can help, either by pledging savings, or gifting equity from their own property.

Many parents and other family members, want to help their children or family, get on the property ladder. Some will even lend or gift the deposit money to them.

Rental Crisis = Good Time to Buy

While there have been some changes in the housing market and buying a property, the basics have stayed the same for those buyers who intend to occupy the property.

The buy-to-let market has been experiencing some changes, and these changes tie in with the property market as a whole, and could make the timing to buy a property look more promising.

A few years back the stamp duty was increased on second properties and buy-to-let properties, this had initially caused a spike in buy-to-let properties being bought and BTL mortgages, however now this surge has subsided, and more and more landlords are not buying new properties, and many are selling what they have.

With this decline in BTL properties, it means less properties are on the market to be let by tenants, which can cause a “rental crisis”. More tenants then properties to let.

And with even more changes coming into play, and being proposed, such as limiting fees landlords and estate agents can charge tenants, and also the proposal of the abolition of Section 21, which would ban landlords from “no-fault” evictions.

All these changes make being a landlord less attractive, and less profitable. It makes being a tenant safer and less costly, but could also prove a challenge for tenants in finding a property to let, in the private landlord sector.

If investors and landlords are buying less properties, this should mean more properties would be available to purchase by owner-occupied buyers, and first-time home buyers.

The Head of Research at Hamptons International, Aneisha Beveridge stated, “Generally first-time buyers and landlords buy quite similar homes.”

In 2015, some 16 per cent of first-time buyers purchasing their first home faced a competing offer from an investor in London.”

However, since taxation on buy-to-let has increased and landlords are purchasing fewer homes, first-time buyers purchasing a home in London came up against an investor just 11 per cent of the time.”

Philip Booth and Rosealind Beck, authors of Taxation Without Justification stated, “Restricting the supply of homes for rent will make renting more expensive for renters and is likely to reduce the number of let properties and increase the number of owner-occupied houses.”

However, this will only allow a small number of people at the margin to purchase a home.”

Those marginal buyers are likely to be a non-representative subset of people. It is likely that they will be richer on average than those who rent and whose rents rise because of the reduced supply and increased costs of renting.”

Which still brings about the issues of deposits, and getting a mortgage if you wish to be a home buyer.

Bank of (insert friend or family member’s name here)

As mentioned, parents and other family and friends may help a new home buyer get on the property ladder, usually by providing some of or all of the deposit.

However, there may also be affordability issues due to the high cost of properties. It can take two (2) incomes to qualify and afford the loan payments.

So in some instances friends and/or family members may buy the property together, either to both reside there, or work out other living arrangements.

This can be a cooperative effort that benefits all parties involved, however, you should get both of the parties intentions in writing, almost like a contract. The reasons for this can be many, and one reason may be the parties have a falling out, or one party feels they are entitled to more of any profits should the property be sold in the future.

If everything is equal, you both provide 50/50 contributions to the deposit, and equally 50/50 share in the loan payments, maintenance and upkeep, it may be easy to show this should there be a dispute.

However, things are not always equal. One person may contribute a larger amount of the deposit, pay more towards the mortgage, or one person may alone pay for maintenance or renovations.

Buying a property together can be a good way to get on the property ladder, you just need to cover all the aspects of the transaction, as it is a financial transaction, and has implications.

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