Shared ownership can be a trap
STRESSES In recent years when home loans have been so difficult to come by, potential buyers have often been urged to pool their resources with friends or family members so that they can qualify for a bond and get on the property ladder.
However, says Berry Everitt, MD of the Chas Everitt International property group, not enough has been said about problems that can arise in shared ownership or partnership situations, and what needs to be done pre-purchase in order to counter these.
Everitt says that the biggest risk in joint purchases is that one partner wants to sell when another doesn’t, “because there’s an extremely limited market for half-a-house when one partner is still living there”.
The partners can and should draw up an upfront legal agreement setting out the procedure if this situation should arise, he says, but the fact is that things will almost inevitably come down to the half-owner who wants to stay either having to quickly raise the money to buy out the other half-owner’s share (and pay a second lot of transfer costs) or being forced into selling (possibly at a loss) so that they can both be free.
“In addition, it is worth noting that most banks are not keen any more on joint purchases by people who are not married or life partners. Currently only one will approve a multiple bond account, with each partner being responsible for his or her share of the debt. The others will only allow one bondholder — one partner is legally responsible for the mortgage debt, and will be stuck with it if for some reason the other partner can’t or won’t pay their share.”
Other factors to consider when buying a property with a friend include the need for mortgage protection insurance.
“Shared ownership is no picnic, and arrangements in which parents or other older relatives agree to subsidise a first purchase for a young buyer or couple (usually by paying the deposit) are on the whole a much better idea...”