Buying a house with a friend is no longer unusual. With property prices soaring, many first-time buyers are choosing to pool resources. The arrangement can open doors to homeownership sooner, but it also carries risks if not approached correctly. Legal safeguards and careful planning are essential to protect both parties.

Understanding Joint Ownership

 When two people buy a property together, they must choose between joint tenancy and tenancy in common. Joint tenancy means both owners hold equal shares, regardless of contributions. Tenancy in common allows ownership to be divided unequally, reflecting each party’s deposit or input. For friends, tenancy in common is often the safer choice, offering flexibility and clarity.

Creating a Declaration of Trust

 A declaration of trust is a legal document that sets out each buyer’s share in the property. It protects both parties by recording who invested what and how proceeds will be split on sale. Without it, disputes may arise, especially if contributions are unequal. This document should also cover what happens if one buyer wishes to exit the arrangement.

Setting Up a Joint Mortgage

 Mortgage lenders will assess both buyers together. This means affordability checks are based on combined income, but repayments are a joint liability. If one party fails to contribute, the other remains responsible. Clear agreements should be made about how repayments will be split and what safeguards exist if one buyer’s circumstances change.

Splitting Deposits and Contributions

 In many cases, one buyer contributes more towards the deposit. Recording this in the declaration of trust ensures fairness. It also guarantees that, should the property be sold, each party recovers their rightful share. Transparency at the outset avoids disagreements further down the line.

The Role of Estate Agents

 A knowledgeable estate agent can guide buyers towards the right properties and highlight potential challenges. Local expertise makes a difference. For example, Parkers Newbury Estate Agents has helped many joint buyers navigate the process, ensuring properties are not only affordable but also suited to long-term goals.

Legal Rights and Obligations

 Co-owners must plan for the future. What happens if one wants to sell but the other doesn’t? Can one buy the other out? Or must the property be sold entirely? These scenarios should be agreed in writing, ideally within the declaration of trust, to prevent future disputes from escalating.

Exit Strategies and Contingencies

 Friendship does not guarantee permanence. Life events such as job moves, relationships, or financial difficulties can alter priorities. Exit clauses provide a roadmap for these moments. A buy-out option, or agreement to sell on the open market, ensures fairness while preserving friendship.

Insurance and Protection

 Life insurance is often overlooked. If one co-owner dies, the surviving friend may struggle to maintain mortgage repayments alone. Insurance can provide a safety net, ensuring that the remaining owner is financially secure and able to retain their share.

Tax Implications

 Buying together can trigger tax considerations. Stamp Duty Land Tax is calculated on the total purchase price, not individual contributions. Additionally, if one co-owner sells their share later, Capital Gains Tax may apply. Early advice from a tax specialist avoids unexpected liabilities.

The Importance of Legal Advice

 Each buyer should seek independent legal advice. A solicitor ensures rights are safeguarded and the correct ownership structure is chosen. Independent advice prevents conflicts of interest and guarantees both parties fully understand the risks and responsibilities.

Conclusion

 Buying a house with a friend can be a practical solution, but it requires careful legal planning. From choosing ownership structures to drafting exit strategies, every step should be taken with clarity and foresight. By securing the right agreements, both parties can enjoy the benefits of co-ownership without risking financial or personal fallout.