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House mates

Annie Shaw reports on the growing trend for friends and strangers to band together to get a mortgage

New research from Abbey reveals that 17.3 million adults are not able to buy a property, with 7.4 million people citing ballooning house prices as one of the main reasons.

The latest ruse to be added to the plethora of schemes to help buyers – including eye-watering income multiples, 125 per cent loans, mortgages guaranteed by mum and dad and part-owner schemes, such as the Government’s HomeBuy initiative – is the so-called “group mortgage”.

A group mortgage, also known colloquially as the “mates’ mortgage”, allows up to four people to club together to buy a home – in some cases, people who have never even met before.

Crazy? Very possibly. But, in their rush to snaffle up a little bit of the market, this is what some lenders and intermediaries are helping people to do. It seems that we have entered the Friends era of buying a home.

Britannia’s member business managing director Tim Franklin says: “Many graduates and young professionals have built up sizeable debts as students, and, even with a City income, these young people are struggling to buy a home.

“With many people feeling that rent to a landlord is money down the drain, it is becoming more acceptable for friends to club together to buy a property.”

Today lenders will consider couples and groups of up to four friends – the maximum number whose names can be put on a property deed – who have no particular commitment to each other except a shared wish to get on the property ladder.

Taking the concept to the extreme, there are even websites, such as www.sharetobuy.com, www.gohalves.co.uk and www.co-buywithme.co.uk, which will “matchmake” people who are willing to buy together even though they have never met before.

Last month, Britannia agreed a deal with Graduate Network to promote its shared mortgage product, in association with www.sharetobuy.com.

John Charcol senior technical director Ray Boulger says: “From a lender’s perspective it does not matter whether they are a married couple, whether they are in a civil partnership, whether they are friends or whether they are strangers. The lender will treat them the same.”

As well as Britannia, other lenders which are prepared to lend in this way include HSBC, Abbey, Skipton and Halifax. They offer their full range of fixed-rate, variable rate and tracker mortgages to groups of buyers although not all will lend to the same level. Halifax will take account of just two salaries out of a maximum of four.

Britannia is probably the most generous, lending up to three times all four salaries. Abbey lends twice the salary of the two highest- earners in the group and once the salary of the others. HSBC uses an affordability calculation for all four borrowers.

Halifax spokesman Paul Fincham says “Mates’ mortgages are not specific products but a way of buying. Any of our products could be used as a mates’ mortgage. What is different is the process we go through to ensure that the parties are aware of all the pitfalls and take independent advice.”

Anecdotal evidence suggests that group mortgages are still a fraction of the market but is the idea just a gimmick?

Fincham says: “I would not say it was a gimmick. If you look at the figures, I think you may find a small rise in the number of friends clubbing together to buy a home but I doubt if the total number of people buying in this way is more than a few thousand.”

Research by Abbey found that, whereas three-quarters of first-time buyers (76 per cent) would consider sharing their mortgage with one other person, only 11 per cent would consider sharing with two or more people.

Skipton head of lending Colin Dale says: “It is really a last option for people who have exhausted other ideas, such as parental help with the deposit or a guarantor mortgage.”

But HSBC thinks the rising trend will continue. Head of mortgages Carina Kemp says: “The average house price in England and Wales now stands at almost 200,000, which is over six times the average salary. But homeownership is as popular as ever so first-time buyers are thinking laterally about how to get on the property ladder.

“At HSBC, we have seen a 50 per cent increase in group mortgage applications this year alone. More and more people are getting round high property prices by clubbing together with friends or family to buy a home and this is a trend which we expect to continue.”

The process of buying in this way is full of pitfalls and intermediaries need to know what they are. Karen Barrett of www.impartial.co.uk, the mortgage side of IFA Promotion, says: “A huge proportion of people know little or nothing about buying a property or mortgages. The need for advice is clear and arguably it is the first-time buyer who would benefit most from independent financial advice.”

HSBC’s Kemp says: “Before you take the plunge, it is essential to know and trust your co-owners and to have drawn up a contingency plan for when circumstances change. A good safeguard s to draw up a legal agreement, before the purchase is completed to cover eventualities such as what happens if one person decides to move out or falls on hard times.”

Britannia’s scheme can help with this. Franklin says: “We were the first lenders to launch the share to buy scheme, and we also provide borrowers with their own comprehensive, essential legal arrangements as part of the whole package.”

London & Country head of communications David Hollingworth says: “Co-owners need to ensure that their ownership is on a ‘tenants in common’ basis and draw up a deed that specifies who has paid what by way of the deposit.

“Getting a mortgage right for four people is simply four times harder than for just one person because you are multiplying the difficulties. You have to get all the moons aligned.”

As for buying with someone you have never met before, the relationship could end up like Single White Female rather than Friends. If the arrangement is not going to end in tears you have to get the legal work right, says Hollingworth.

Credit-referencing is certainly one of the hazard areas. Credit reference agency Experian points out that just one poor credit record among four co-buyers could have adverse effects on the group getting the mortgage they need.

Moreover, poor credit behaviour by one party during the course of the shared mortgage could also damage co-buyers’ loan prospects in future, because, even though the individual parties consider themselves to be independent of each other, they are, in credit reference terms, financially linked.

An Experian spokesman says: “Once two people are linked and one of them app- lies for credit, lenders will be able to see and take account of information about the other. It is important for lenders to be able to do this because the way that one of you manages credit is likely to affect the other.

“When two people share and contribute to a household budget or have joint credit commitments, lenders need to know about both partners, even when just one of them applies for credit.”

Boulger says all parties should enter the arrangement with their eyes open and seek legal advice before embarking on a purchase.

He says: “It is quite likely that one of you would want to move out of the property before the other and so you need to give very serious thought to the implications of that.”

He adds that care should be taken with the choice of mortgage product. One with no early repayment charges, or one that has an early repayment penalty only for a short period, would probably be the most suitable.

HSBC checklist of what people buying with friends need to know FLegally, in England and Wales, up to four people can jointly own a property.

FWhoever is on the property deed must, legally, be on the mortgage deed.

FIn the case of co-ownership, most people opt to become “tenants in common”, which means that each party holds separate shares in the property. This agreement should take into account how much each party is putting into the property, both in terms of contribution to the deposit and monthly mortgage payments.

FEveryone who is on the mortgage deed is jointly liable to pay the whole mortgage, so each co-owner should ensure they are adequately covered should they fall on hard times and be unable to meet their mortgage commitments.

FAnyone thinking of sharing a mortgage should consider renting together for six months first. It is easier to walk away from a tenancy agreement than a mortgage.

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