Are mates’ mortgages the way to go for FTBs?

Buying a home with a group of friends may seem a good way for first time buyers to get a home in a climate of rising interest rates and house prices. However, as Moneyfacts analyst Julia Harris says, first time buyers may not be able to borrow as much as they would think.

Although 60 mortgage lenders will accept mortgage applications from up to four people, 70 per cent of those lenders only take the two highest salaries into consideration. This means that getting a large enough mortgage may still be a problem. Lenders apply different criteria to the consideration of income and use either income multiples or ability to repay, which means that it might be worth speaking to an adviser to determine whether a lender will suit you.

There are several questions that have to be answered. It is important to know whether all parties have a clean credit history and what would happen to mortgage repayments if one person lost their income or wanted to leave the group. There is also the question of whether buying a home with strangers is a step too far.

Ms Harris comments: ‘Many people find that just living and renting with a partner for six months can be difficult, let alone owning and sharing a property for at least two years with three people that you don’t know well. It is unlikely that you are going to be able to afford anything that spacious, so the strains of sharing a bathroom and potentially a bedroom will be a real test of your relationship with your friends.’

She adds: ‘Many mortgages are not really designed for this kind of situation. Despite mortgages with as tie-ins as short as six months being available, the most competitive fixed or discounted rates will be for a minimum term of two years. On the face of it two years may not seem very long, but it could seem like an eternity if your fellow co-owners turn out to be housemates from hell.’