FOOL'S EYE VIEW
Buying Your House With Friends

By Jane Mack (TMFJane)
December 10, 2002

A young couple I know are in the process of buying a flat with a friend. It's the only way all three of them can afford to get on the property ladder without having to live in a dump in a seedy area of town. Buying with friends is an increasingly popular choice for people who feel they've been priced out of the housing market and banks are far more willing these days to lend to borrowers whose only connection is friendship.

However, it's not something to go into with blind faith. Just because you and a mate have sat next to each other in school for ten years, before going on to become well acquainted with the student union bar at university, doesn't mean that buying a house together is simple.

For a start, you have to decide how to own the property and in what proportion. For example, in the case of my young couple, it's only the friend who's got the money for the deposit so the paperwork needs to reflect his greater contribution to the purchase of the flat. Initially, I was told that the friend would put up his £20,000 (or whatever the sum of money is) and, when the flat is eventually sold, he'd reclaim his £20,000 and then they'd split any profits between them. I pointed out to the couple that this was actually unfair on the friend, as it would mean his original stake wouldn't grow. For some reason, this hadn't occurred to them and they agreed that it would be far better to express his contribution as a percentage so that the friend could reclaim his stake in real terms before dividing up the rest of the spoils.

There's also the question of whether they should be joint tenants or tenants-in-common. The easiest way of describing the difference between the two phrases is to use the example of what would happen if one person dies. If they hold the flat as joint tenants, then all three will effectively own the whole house between them as if they were a single entity instead of three individuals. So, if one of them were to pop their clogs, the survivors would automatically inherit the whole flat between them. Alternatively, if they hold it as tenants-in-common, each of them would own a theoretical third of the flat and would be entitled to leave their respective shares to whomever they liked in their wills.

A joint tenancy would be fine for the couple, not least because marriage is probably on the cards, but clearly it would be inappropriate for the friend. So they've opted to buy the flat as tenants-in-common and to draw up wills.

The only thing that initially made me feel slightly uncomfortable about the whole arrangement was that it's a relative of the friend who's handling all the paperwork. He's a solicitor and is drawing up their ownership agreement and doing the conveyancing for free to help out. It should save them several hundred quid and, since my young couple trust their friend, they also trust his relative.

There's no reason why they shouldn't, of course, except that it meant the couple didn't have anyone looking out for their own particular interests. They were quite happy to just sign whatever documents might be put in front of them and to assume that all three of them would have fair and equal rights.

For example, what would happen if one of them wanted to paint the front door bright red and the other two didn't want that colour? How would they resolve it? In a democracy, shouldn't two out-vote one? They've decided that nothing should happen without unanimous agreement between the three of them, which seems very logical but it might also mean that nothing will ever get done.

At any rate, I suggested to the couple that when the documents were ready, they should pay a small fee to have another solicitor run his eye over them -- just in case there's a situation that hasn't occurred to them. In fact, I said that they really should see a lawyer each. Just because they have vague plans to marry eventually doesn't mean they actually will, so they need to look out for their interests independently for the time being.

Thankfully, the friend's relative has also suggested the very same thing, so they'll be able to do it without putting anyone's nose out of joint. As for the front door, apparently they all like dark green so that's one argument they won't have to have!

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