- Continuing Surge in Group Mortgages01 August 2007
Continuing surge in group mortgages
Statistics indicate that group mortgages are increasing in popularity at an increasing rate and are becoming a consideration for a growing proportion of first time buyers. Although these “mates mortgages” can open many doors, they should be entered into with extreme caution and all proper legal advice.
Why buy with friends?
In the midst of rising house prices, first time buyers have to borrow an average of over three and a half times annual income and many are precluded from stepping onto the property ladder without major compromises in the standard and location of their home.
By combining up to four incomes, co-buyers can improve their buying power and make payments more affordable. For many it is the only way of buying a home and will often be combined with mortgage features like an increased term or an interest only mortgage.
Friends like these
A mortgage between friends should never be taken lightly and there are many things to be considered, quite apart from the obvious worries about living together and paying the bills.
Firstly, the buyers need to decide what contributions to the deposit are being made by each of them respectively and whether mortgage repayments are to be shared equally or divided according to income. The rights to profits from a sale should be decided on before the purchase.
It is important to realise that the mortgagors will be jointly and severally liable for all repayments, which means that each individual home owner is responsible for the whole of the sum owing.
Consideration should also be given to the arrangements should one of the buyers become unable to keep up their share of repayments, or should they wish to move out.
Enter… the Lawyers
To safeguard against the potential pitfalls referred to above it is essential that a legal document is drawn up that accurately reflects the buyers’ respective interests and duties under the mortgage.
A Trust Deed will specify the varying proportions of the equity when it becomes time to sell, depending on deposit contributions and payment towards the mortgage, and will protect each owner’s legal rights should a dispute arise.
A Cohabitation Agreement can describe in more detail each mortgagor’s duties in relation to the property on a day to day basis and prevent a happy home degenerating into a hive of argument.
It is important to register ownership of the property in the right way. If the buyers are to own unequal shares of the property then they must be registered as “tenants in common” to reflect what proportion of the property each person owns and allow for dealing with that share accordingly. Solicitors should be consulted to decide what is best in the particular circumstances.
Who needs friends…
The continuing rise of group mortgages is a natural bi-product of rising house prices and for many will be the only route onto the market, but it pays to remain wary of the complications that can arise upon the moving out or falling out of housemates. Provided the mortgagors appreciate what they are signing up to and the right legal documents are signed, there’s no reason why co-buyers can’t remain the best of friends.
For further information please contact a member of our conveyancing team.
Buying and Selling Your home
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