Buddying up as a first-time buyer
The challenges faced by first-time buyers are well known, especially following the government’s recent attempt to ease the process by offering a stamp duty exemption for first-time buyers up to £300,000. However ultimately misled I believe this initiative to be, given that it doesn’t help increase transactions across the whole property chain, the fact of the matter is that it is unlikely to help many of those looking to get on the property ladder in London.
Purchasing a home in North and North West London is likely to cost a minimum of between £200,000 and £250,000. This means that, for many, purchasing solo is not an option, particularly so when you consider the associated costs and income required to obtain a mortgage. In light of this, in an attempt to get a foot on the housing ladder many first time buyers are choosing to purchase with a partner or friend.
However, it is crucial that, in such a situation, cool heads prevail and the decision to buy with another party is made objectively. Buying jointly requires a lot of trust, transparency and above all good planning. For anyone considering a joint ownership arrangement, there are a few key considerations that will ensure you don’t get left wishing you’d gone it alone.
One of the benefits of buying with a partner or longstanding friend should be an inherent level of mutual trust. However, this doesn't mean it isn't worth consulting lawyers about a legally binding co-ownership contract and agreeing in advance what will happen if one owner's circumstances change. Although it might not seem friendly or comfortable to address with a partner or friend, it is crucial that you consider the worst outcome as a means of protecting you both. Not doing so could end in a total breakdown in your relationship, and lots of costly disagreements that often result in someone losing out. As well as agreeing how the deposit contributions will be repaid, be sure to clearly outline how any profit will be split when the property is sold.
On this note, it is important that you each have a clear paper trail for all decisions and transactions made. All paperwork relating to the property or mortgage must be in the names of the co-buyers, and remember to get any agreements written down – especially if the parties are not contributing evenly. Making copies of all documents associated with the purchase is a good idea as it allows them to be readily accessible to both parties and ensures there is always a record of joint decisions. Remember to treat decisions about the property as business transactions. Regardless of who you buy with, ensure important agreements are recorded in writing.
This even applies to the nitty-gritty details, such as who owns the sofa or television. Drawing up a comprehensive inventory of non-shared items or other costs, and keeping a note of who pays for things at the start of the transaction, can reduce confusion down the line.
Overall, no matter how exciting a decision this is (and buying your first property is always an exciting and emotional process) it is important to retain realistic expectations and remember that circumstances – whether jobs, relationships or family – can change, so be honest about your reasons for buying together. Ultimately this purchase must be an investment for both parties, and as such, the decision should be treated as dispassionately as possible.
However hard buying the first property in London may be, getting yourself out of a complicated co-ownership situation is even harder. Ultimately, co-ownership should always be treated as an investment decision and so, however exciting that first step may be, buying a property with good potential for capital growth makes sound business sense.
Simon Gerrard FNAEA PPNAEA MARLA