Owning a property with a friend can help first-time buyers.
Twenty or so years ago, a two- bedroomed terrace house with separate garage on the outskirts of Newcastle close to a Metro Station, shops and schools could be bought for under pounds 20,000.
Ideal for a first time buyer or young family. Today that same house could easily cost in the region of pounds 90,000.
Twenty or so years ago, mortgage interest rates were between two or three times higher than the level they are now and were frequently fluctuating as inflation and the economy hit ups and downs.
So a first-time buyer 20 years ago could buy a property for a reasonable price, but had to carefully consider the effect on cashflow of the high interest rates at that time and whether a mortgage lender would grant a mortgage taking into consideration their income.
Being awarded a mortgage was not always a forgone conclusion.
Now mortgage interest rates are fantastically low and lenders are keen to secure mortgage business.
However, prices are so high that even taking a multiple of three or four times salary, the amount of mortgage required cannot always be achieved by young first time buyers on lower salaries.
So is the only alternative to rent? Quite often it is the only alternative, except where you may be willing to purchase a house jointly with a friend.
This way, two incomes can be considered for the purpose of calculating the amount you may borrow.
For those wishing to get a foot on the housing ladder, and have decided to buy a property with a friend, you need to consider the main points to agree with your potential co-owner prior to entering into a joint purchase arrangement.
Estimate the length of time you envisage keeping the property together.
Is the property needed for a set duration, for example while at university or carrying out a work project?
If so, make sure any mortgage penalty period does not exceed the period that you wish to keep the property or penalties will be incurred at the point of resale.
Are the deposit and contributions towards mortgage repayments to be equal?
If not, you should make sure your legal advisor draws up a Trust Deed confirming that on sale of the property the percentage of contributions paid by each of you are paid back in the same percentages from the proceeds, if this is to be the agreement.
Are the contributions towards the upkeep of the property and the outgoings and bills to be equal?
Are you going to share the cost of purchasing equipment and furniture for the property?
This area of ownership may need an agreement to reflect the responsibility for the costs so that when it is appropriate to sell the property, the ownership of goods is clear and any unequal payment of maintenance and upkeep costs can be rewarded out of the proceeds of sale, as written in the agreement.
Accounts during ownership should be kept and updated regularly.
What happens if one of you were to die during the joint ownership period?
As this is a type of business arrangement this needs to be considered carefully, as the deceased would no doubt want their accumulated share in the property to go to their beneficiaries who are possibly not the co-owner.
The legal title to the property should therefore state that the property is held by the owners as tenants in common - that is, in specific shares.
The respective shares in the property will then pass on death under the terms of the deceased's will.
The survivor may then be forced to sell, but mortgage protection insurance may help in these circumstances giving the survivor more time to sell.
Mortgage protection insurance could also help if one of the co-owners were made redundant or became too ill to work, giving more time to both owners to arrange to sell the property and find alternative accommodation in such an event.
Co-ownership can therefore be useful to first time buyers wanting to get a foot on the property ladder, but who do not have enough income to be offered the necessary mortgage loan.
Legal advice is essential however to ensure that an agreement for maintenance costs and furniture for the property during the ownership period and a Trust Deed, setting out the agreement for the proceeds of sale, are understood at the beginning of the arrangement and enforceable at the end.
* Hilary Brown is an associate at North-East law firm, Ward Hadaway.
She can be contacted on (0191) 204-4000 or visit www.wardhadaway.com
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|Publication:||The Journal (Newcastle, England)|
|Date:||May 10, 2003|
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