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Today, Private Finance; the independent mortgage broker, has offered homebuyers five top tips for gaining access to finance when buying with a friend. The broker has issued this guidance in response to a growing number of enquiries from first time buyers who need to share with friends in order to buy their first home.
Whilst experts at Private Finance have said that co-borrower mortgages should be ‘fairly straightforward’ to process as there is no discrimination from lenders towards co-borrowers who are not married or related, the broker has also said that the majority of applicants are unaware of the many possible pitfalls involved in the process. They should therefore undertake thorough research before entering into such an agreement.
Simon Checkley Managing Director of Private Finance offers five top tips for applicants buying with a friend:
1) Seek expert legal advice
We advise anyone buying with a friend to ensure they have formal agreements in place from the outset. In the case of co- applicants, taking expert legal advice is arguably even more important than in cases where applicants are bound by family ties or marriage as the parties are not formally ‘committed’ to one another in any other capacity. Such an agreement should take into account all eventualities where personal circumstances may change. One example might be in the case of a disagreement or where one or the other party decides to marry or sell the property for any unforeseeable reason.
2) Maintain honesty and transparency in your finances
Discussing financial matters with a friend can be more difficult than with a relative or spouse, especially if you have significantly different incomes. However, if you are buying a property together you have to be prepared to be upfront and honest about every aspect of your finances. If you are not prepared to disclose personal financial information with your co-borrower then you may need to seriously rethink your decision about who you are buying with. Furthermore, you need to be aware that when you link together on a mortgage, you are also linking your credit profiles. Therefore, if there are any negative points on your credit profile they will also reflect on the other person too.
3) Shop around for your mortgage
For friends buying together in their twenties and early thirties, it doesn’t make sense to choose a longer term fixed rate product as their situations are likely to change in the short to mid-term future. Similarly, there may be advantages to choosing one particular product over another for each individual case. That is why it is important for borrowers to seek expert financial advice from an independent mortgage broker who can advise on the best options available from across the whole of the market.
4) Set up a joint account
Having a joint account for bills and mutual expenses takes the responsibility away from just one party and therefore minimises the possibility of any disputes. Many of our clients have found this works very well in practice after they have moved in.
5) Draw up an inventory for shared items
Drawing up an inventory of shared items in your formal legal agreement is strongly advisable before you complete on your purchase. This will avoid any possible conflict if one party decides to move out for whatever reason.