Things to consider when buying property with a friend

Published: 24/07/2013

First time buyers may be enjoying a recent revival – there has been a 42% increase in the number of approved loans to newbie buyers – but getting on the ladder remains no easy feat. As a result many are pooling resources and buying property with friends.

Sounds sensible but mixing property and friendship can be a risky prospect particularly if one party is putting in more equity than the other. That’s why it’s essential to have everything agreed and documented before signing on the dotted line, as our Head of Property, Lynne McCaffrey, explains:

“In these financially tough times it is understandable why many are considering buying property with their friends. However it is only a sensible decision if everyone is on the same page.

“There are a number of things to consider before even starting the process; most importantly how you will split any profits if or when you need to go your separate ways. This is particularly important if you have contributed varying amounts either with the initial deposit or with the ongoing payments and maintenance.

“There are two ways in which you can co-own property; as Joint Tenants or Tenants in Common. In this type of situation the majority opt to hold the property as Tenants in Common as this allows each co-owner to own a specific share of the property i.e. 50/50, 70/30. This means if the property was ever sold each owner would receive the monetary equivalent of their share. So if the property sells for £250,000 and you have a 70% share, you would receive £175,000.

“It is also highly advisable that co owners take out a Declaration of Trust. This is a legally binding document which clearly outlines what you each own and how the value of the property would be divided should you ever sell up.

“A Declaration of Trust records what each tenant has contributed to the property including the initial deposit needed for the property, the mortgage repayments and/or the financial upkeep of the property. It is therefore an incredibly important document if one person has put in more money than the other.

“Without a Declaration of Trust, co-owners could end up facing a potentially complex and unpleasant legal situation. If you don’t detail your individual stakes in the property and then later disagree on who should receive what, you may need to go through a very expensive and lengthy court case to sort it out.

“Anyone using our conveyancing service can take out a Declaration of Trust at a reduced price. For more information, read our free Guide to Owning a Property Together.”

Content correct at time of publication