At the end of 2021, Sara* dove headfirst into a decision she would later regret. She had made “some money” buying cryptocurrency and wanted to use it to get into the property market. She felt there were two options she could afford: a studio apartment in the city; or teaming up with a friend to split the cost of a house in a regional area. Desperate for extra space after the pandemic, she chose the latter, and the pair bought a little seaside fixer-upper cottage. They planned to do some light renovations, then live there together.
Sara was excited about buying with one of her closest friends, someone she’d known for over a decade – “longer than any relationship I’ve had”. But things unravelled quickly. The renovations blew out, becoming far more expensive than either had anticipated. Interest rates started their rapid ascent, adding extra financial pressure. Sara began to feel that she was doing more renovation work than her buying partner, creating a sense of imbalance. And they started to clash on decisions, big and small.
“We’re getting into stupid fights about what floorboards we’re going to get because I’m the one who’s always like, ‘we can’t afford that’,” Sara says. She assumed years of friendship meant they would make a good team. “And then you find out through the process of trying to build a house together that maybe you’re not actually that compatible.”
At the start of the process the pair paid a lawyer to write out some terms, including what they’d do if one party wanted to sell – “as a friendship protector,” Sara says. But “there’s nothing in the clauses that says you can’t be difficult”.
They’re now close to finishing the renovations. But after all this, do they even want to live there anymore?
“Not really, no,” Sara says. “So many things have changed.”
Sara and her friend aren’t alone in pooling their money to get on the property ladder. Often, those looking to buy with a friend will use a tenants in common agreement – a legal structure where each party has a defined share of a property they’re purchasing (rather than an automatic 50/50 split). Victoria Divine, a mortgage broker, podcaster and author of Property with She’s on the Money, says lately she puts together a tenants in common agreement “every two weeks or so”.
The incentives for buddying up to buy are obvious. “Buying property is getting harder and harder,” Divine says. She points out that property prices have far outstripped wage growth, putting home ownership out of reach for most people on a single salary. This means those who still want to buy property have to “look for alternate ways of doing it”.
“And buying property with other people, whether that’s a friend or a family member, can obviously get you into home ownership faster.”
When it works well, buying with friends or family can be a foot into the market, or a way to afford something with better capital growth potential, building equity that can be used on a forever home later. And it’s not just young people who are doing it. Divine says she’s seen a number of older women buy together: “Single mums getting in with another single mum and cohabitating and living their best life.”
But it’s “so important to choose the right person,” Divine says – because there are a raft of ways it can go wrong. While banks are generally happy to lend to those buying as tenants in common, many will require the two parties act as guarantor for each other, which means being on the hook for the other party’s debt if they stop paying. A co-owner defaulting on their mortgage could affect the other’s credit rating, and because all owners need to agree to a sale, co-owners can end up trapped if one party wants to sell but the other refuses. Or, as Sara’s experience shows, it might simply erode a relationship through a thousand smaller squabbles.
Some worst-case scenarios can be planned for through a legal document called a cohabitation agreement, Divine says. These stipulate terms for a purchase – for instance, planning for what might happen if one person can no longer meet their financial commitment, or simply laying out exit strategies. (This is the legally-binding, but not personally effective “friendship protector” Sara speaks of).
Hamish Landreth, a financial consultant at Prosperity Wealth Advisers, says that buying property via a company or a trust is another way to structure co-ownership, and allows for more flexibility to change…
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