Everything you need to know about sharing a mortgage with friends

What is a joint mortgage?

A joint mortgage is a loan taken out by two or more people in order to buy a property. In doing this, they become co-owners and have a shared responsibility to repay the mortgage. Combining incomes and having a joint mortgage with a friend can be beneficial for many reasons, but most importantly, it can enable you to get on the property ladder sooner.

Advantages of buying a house with a friend

Buying a house with someone else has become more popular over recent years. As our research shows, 23% of prospective homebuyers aged 18-24 are planning to buy with a friend. This equates to around 67,500 of first time buyers per year.¹ 

Pooling resources and sharing a mortgage with a friend can be advantageous for many reasons:

• Increase your borrowing power - by combining salaries, you may be able to afford a more desirable property. 
• Put down a bigger deposit - having a larger deposit means you could benefit from lower interest rates. 
• Start building equity - contributing to a mortgage every month means you’ll start to increase the amount of the home you own outright. 
• Share the cost of living - having someone to split the bills with can ease the affordability challenges many are faced with when buying for the first time. 
• Choose who to share it with - you get to live, and share a mortgage, with someone you like and trust. 

Financial considerations 

Sharing a mortgage with a friend is a big investment to take on together, so it’s important to have an open and honest conversation about your financial situation before you agree to anything.

Credit checks

Both applicants who apply for a joint mortgage will undergo a credit check to see how financially reliable they are. A poor credit score from one person could affect the entire application, so if you already know that you have bad credit, you should take steps to improve your credit score before applying for the mortgage. 

Also, once you have your mortgage, any problems with late payments could negatively impact your credit score, even if it’s your friend who is responsible for the missed payment.

Establish a budget

You should sit down together and decide where you want to live, and what type of house you’d like to live in. Consider things such as: your commute to work, local amenities, off-road parking, garden for pets and more. 

The next thing you need to look at is both your incomes, monthly outgoings, and combined deposit amount. Once you have this established, we can give you an accurate estimate of the mortgage you can afford, using our affordability calculator.

Deposit and ownership shares

If you’re buying with one other person, you don’t necessarily have to split the cost of everything 50/50. Decide upfront on the contribution percentages for both the deposit, and ongoing mortgage payments. This will determine each person’s ownership stake in the property. Be sure to put this down in writing so if you ever sell the property, everyone gets their stakes.

Other considerations 

It’s crucial that you understand the legal implications of taking on a joint mortgage. There are more variants when there are two applicants sharing a mortgage, but by hiring a solicitor, they can navigate you through the legalities of buying a house with a friend, such as the tenancy agreement you chose. 

Joint tenants

If you opt to be joint tenants, you will each own an equal share of the property.  If one person passes away, their share of the property will be passed onto the other owner/s. If one person decides to sell the property, they would need agreement from all other owners. 

Tenants in common

Tenants in common can own different shares of the property. If one person passes away, they can leave their share to a beneficiary, rather than the other owner/s. If one person decides to sell, they can do so freely and without any agreement from the others, but it is best to at least speak with them first. 

Co-ownership agreement

A co-ownership agreement is a legally binding agreement that outlines ownership rights, responsibilities for maintenance and bills, and exit strategies should someone want to sell their share of the property.

Dispute resolution

This specifically refers to a process for resolving disagreements about the property or any finance-related issues.

Draw up a will

Getting a will drawn up ensures that your share of the property goes to your chosen beneficiary when you pass away. This doesn’t necessarily have to be to the other owner of the property - it can be to family or other friends.

Lifestyle considerations

As well as considering the financial and legal aspects of buying a house with a friend, it’s important to also take the time to think about who you might want to live with and how that relationship would work. 

Compatibility 

Living with friends can be great, but do your lifestyles align? For instance, what are your expectations with noise levels, cleanliness etc. Living with someone can be quite different, and it’s not uncommon for this to put a strain on your friendship. 

Exit plan

Considering potential scenarios is crucial when purchasing a property with a friend. What happens if one party wants to sell or needs to relocate? Having a clear exit strategy in place is therefore fundamental. This includes outlining the process for selling the property, a right of first refusal for the other party, and how to determine the property's value in case of a buyout.

Protect yourself

It’s also wise to consider which insurance policies are likely to protect you and safeguard your investment. Home and life insurance can offer added protection in unforeseen circumstances, such as the death or incapacity of one of the co-owners.

Income protection insurance can also help cover the shortfall if you’re unable to work for a period of time due to illness or injury. This would take the financial burden away from your co-owner.

Speak to a protection adviser today to ensure you're covered, should the worst happen.

Getting expert advice 

Sharing a mortgage with a friend requires an extra level of attention, and a qualified mortgage adviser can guide you through all the steps involved, including: 

• Assessing your combined income and outgoings to ensure you can comfortably afford the mortgage 
• With access to a wider range of lenders, we can find a product that suits your circumstances and offers a competitive interest rate