Question
I own my own property (2 bed flat in North London) and I am thinking of buying another property with one of my best friends (I would then rent my current place out, and we would live in the new place). He would be a first time buyer.
I am pretty comfortable with the whole residential mortgage process etc, but please could you tell me how easy/hard it is for two people to purchase a property together and how we would go about it.Answer
Good to hear from a fellow North Londoner!
If your friend hasn’t purchased a property before (worldwide not just UK) then he should be able to benefit from the increased stamp duty threshold of £250,000 for first time buyers announced in the recent Budget. However, to qualify the property would have to be purchased in his name only which is unlikely to be practical given you wish to purchase jointly.
Otherwise the process is quite straightforward provided you watch out for a few potential pitfalls.
Most lenders will let you apply for a joint mortgage with a friend and as the market appears to be easing hopefully you should be able to get a competitive rate - although you’ll probably need a deposit of at least 25% to access the best mortgage deals.
However, under a joint mortgage you would both be fully responsible for the whole mortgage. So if you fall out and your friend stops paying his share of the monthly payments you could end up footing the whole bill. Because of risks like this it’s wise to draw up a legal agreement beforehand covering all likely (and unlikely) scenarios. Issues it should cover include:
Some money spent on legal fees now could save a lot of potential tears further down the line.
You’ll also need to decide whether to own the property as joint tenants or tenants in common.
If you own jointly you’ll have equal shares and if one of you dies the other will automatically own the property. This works for married or civil partners but makes less sense when buying with a friend.
Buying as tenants in common is likely to make more sense as you’ll each have a separate share in the property that need not be identical. This allows you to leave your share to someone else (e.g. relatives) in your will – if you haven’t already written one you should when taking this route.
Finally, bear in mind that of you live in the new property with your friend this will become your main residence. If you then sell your existing property you could be liable to capital gains tax on any profits, although you should be ok if s3lling within three years of moving out. You can read more details about Private Residence Relief on the Directgov website http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4020890.
Good luck if you go ahead and remember to offset mortgage interest and all other available income tax allowances on rental income from your existing flat when you rent it out.
I own my own property (2 bed flat in North London) and I am thinking of buying another property with one of my best friends (I would then rent my current place out, and we would live in the new place). He would be a first time buyer.
I am pretty comfortable with the whole residential mortgage process etc, but please could you tell me how easy/hard it is for two people to purchase a property together and how we would go about it.Answer
Good to hear from a fellow North Londoner!
If your friend hasn’t purchased a property before (worldwide not just UK) then he should be able to benefit from the increased stamp duty threshold of £250,000 for first time buyers announced in the recent Budget. However, to qualify the property would have to be purchased in his name only which is unlikely to be practical given you wish to purchase jointly.
Otherwise the process is quite straightforward provided you watch out for a few potential pitfalls.
Most lenders will let you apply for a joint mortgage with a friend and as the market appears to be easing hopefully you should be able to get a competitive rate - although you’ll probably need a deposit of at least 25% to access the best mortgage deals.
However, under a joint mortgage you would both be fully responsible for the whole mortgage. So if you fall out and your friend stops paying his share of the monthly payments you could end up footing the whole bill. Because of risks like this it’s wise to draw up a legal agreement beforehand covering all likely (and unlikely) scenarios. Issues it should cover include:
- Your percentage shares of the property and mortgage (if tenants in common – see below)
- What happens if one of you wants to sell?
- What happens if one of you wants to leave and rent out their share?
- What happens if one you dies? (It’s a good idea to ensure you both have sufficient life cover to repay your share)
- What happens if one of you can no longer afford mortgage repayments? (e.g. you lose your job)
- What happens if one of you simply stops repaying the mortgage?
Some money spent on legal fees now could save a lot of potential tears further down the line.
You’ll also need to decide whether to own the property as joint tenants or tenants in common.
If you own jointly you’ll have equal shares and if one of you dies the other will automatically own the property. This works for married or civil partners but makes less sense when buying with a friend.
Buying as tenants in common is likely to make more sense as you’ll each have a separate share in the property that need not be identical. This allows you to leave your share to someone else (e.g. relatives) in your will – if you haven’t already written one you should when taking this route.
Finally, bear in mind that of you live in the new property with your friend this will become your main residence. If you then sell your existing property you could be liable to capital gains tax on any profits, although you should be ok if s3lling within three years of moving out. You can read more details about Private Residence Relief on the Directgov website http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4020890.
Good luck if you go ahead and remember to offset mortgage interest and all other available income tax allowances on rental income from your existing flat when you rent it out.
Read this Q and A at http://www.candidmoney.com/questions/question176.aspx
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