Buying with a partner or friend: the power of two salaries
There’s no escaping the fact that higher mortgage rates have made it more expensive to fund the purchase of a property. Some borrowers are finding repayments have tripled, when compared to 2021 and early 2022, and the pressure is the greatest for first-time buyers trying to purchase a home on their own.
More expensive repayments don’t necessarily mean the end of the home owning dream. Now is a great time to explore other buying options, such as purchasing with a partner or friend. It’s a trend that is already growing in popularity. A report released by the Halifax in August 2023, found almost two thirds (63%) of first-time buyers are joint applicants able to combine more than one salary.
Two people buying a property together can positively affect affordability in two ways. Firstly, when two people to contribute towards stamp duty, less money needs borrowing. Those that need to borrow less tend to have access to mortgage products with lower rates.
Secondly, lenders will typically loan borrowers 4-4.5 times their salary. In principle, a single applicant earning £30,000 per annum may be anle to borrow in the region of £135,000. It’s a tiny amount considering the UK’s average house price, according to Halifax’s August House Price Index, is £279,569.
The picture improves drastically when you combine two wages. For example, when one borrower earning £30,000 per annum teams up with another person who takes home £45,000 per annum, they could jointly borrow in the region of £337,500. Move Places has plenty of properties for sale under this figure – browse our flats and houses for sale and see if anything catches your eye.
If the thought of two salaries sounds appealing but you haven’t found ‘the one’, there is good news. You don’t have to make a joint property purchase with a life partner. You can choose to co-buy with a friend, a sibling or even a colleague.
There are a number of important considerations when you’re combining salaries to buy with another person. Before you commit, you’ll need to:-
Be transparent about finances: a joint mortgage application means both sets of finances will be scrutinised. It’s not the time for falsifying wages, being dishonest regarding credit histories and or over-inflating savings. Also ensure you apply for a joint mortgage where the responsibility of the repayments is shared equally.
The type of ownership: up to four people can jointly be registered as legal co-owners of a property and the ownership can be arranged in one of two ways. Tenants in common is the best option for friends and family members buying together. Under this arrangement, if one owner dies, their share of the property is inherited by whoever is specified in their Will. When a joint tenancy arrangement is chosen and one of the owners dies, that person’s share is automatically transferred to the other owner, which isn’t always suitable if friends are buying together.
Agree who pays for what: before you buy a property, agree how you will split the cost of the mortgage repayments, utility bills, broadband, council tax and home insurance. You will need to take into consideration each person’s wage and whether they work at home, and where the money will go – perhaps a joint account – so the bills are paid on time.
Discuss a Deed Trust: this is a legally-binding document, sometimes known as a Declaration of Trust. It ensures the property owners get their fair share back out of a property when it is sold. A Deed Trust will take into account the amount of deposit each buyer paid, if one person made mortgage overpayments and whether the bills were split evenly. An alternative to a Deed Trust would be a legally-binding cohabitation agreement, drawn up and signed by a solicitor.
Arrange for bills to be in both names: it may feel weird to have both names on the bills but it’s an important aspect when co-buying. Not only will both buyers be able to open, close and amend accounts, the liability for each bill will also be fairly shared.
Plan for big purchases: sofas, fridge freezers, dining tables….there are many shared items homeowners have to buy that can’t be split further down the line. It’s good to have a discussion about going halves when making purchases, what happens when something is broken or damaged, and who gets to keep what if you sell up.
If you are struggling to buy a property on your own and would like to explore buying with another person, contact Move Places for advice. We can also sell a current property using our express property sale service.