Cohabitation rights: A guide for friends buying a house together

The current property market has made buying a house on your own very difficult, and it’s led to an increasing number of people choosing to buy property with friends, loved ones or even acquaintances.

And, although this has become a well-worn path to owning property, there are pros and cons to this kind of arrangement. What if one of you wants out? Or, one of you loses your job while there are payments to be made? You should keep these things in mind.

Buying an investment property with a friend is a long-term commitment, so it’s important that you know what you are getting into. Without further ado, here is our guide to co-buying a house.

Try renting first

You should enter into a rental agreement first – buying a property with someone is a huge commitment and it shouldn’t be entered into without being absolutely sure that you’re buying with the right person ensuring there is no risk of any cohabitation disputes to resolve.

You may never really know a person until you move in with them, so a rental contract is
ideal for this purpose. You’ll find out whether or not you’re compatible as housemates (the gulf between ‘housemate’ and ‘mate’ is wider than you might think) and you’ll get a better idea of their financial state.

Discuss what will happen if one of you wants out

You need to discuss what would happen if one of you wants out of the agreement (this is quite common when investing with a friend). It’s vital that you have the foresight to do this because it can often get complicated further down the line.

For example, if you want to move out of the property then whoever remains at the property will have to buy you out. Those staying at the property will have to buy out the equity stake of the person leaving or face having to sell a property they don’t want to sell.

Talk about your financial situations before any decisions are made

Remember that everyone involved is responsible for the mortgage payments, so you all need to be on the same page when it comes to finances. It is important to remember that if one person fails to pay, you will all be liable to cover the shortfall which could result in an uncomfortable conversation that could have been preemptively dealt with.

Share your finances

It helps if you set up a joint bank account with which you can pay for things like home improvements, repairs, or purchases that you can enjoy as a group (like buying a television, for example). A joint bank account makes the whole thing easier and more transparent, as opposed to having separate bank accounts with money coming from each.

How much are you contributing to the deposit?

If you are all putting different amounts in for the deposit, you need to consider the size and proportion of the property that each deposit amounts to and in what proportion you would want to split the proceeds if one person decides to sell.

This may seem extreme, but you need careful forward-planning in order for an arrangement like this to work. Sharing a home is one thing and it asks a lot out of each of you; owning a home is a serious, long-term commitment.

Keep paperwork organised

Whether you nominate one person to keep on top of paperwork or you do it together, you should ensure that all documents are accessible to everyone and are signed by each co-buyer. Have all paperwork on hand, filed away and properly organised.

Pros and cons of buying a house with friends

Pros

• The financial benefits of having someone else help with the deposit is the main driver for the majority of cohabitants. You’ll also have someone to contribute to the mortgage payments and any other costs like home improvements.
• Your social life will likely benefit from living with friends. There’s a good chance your social network will get bigger and you may have a busier social life. Many students think of the years spent flat-sharing as some of their best – so, you may as well own the property while enjoying a similar lifestyle!
• You may feel that this is your only chance to get on the property ladder and own your own home. If so, this reason alone could supersede all disadvantages (as long as you’re confident in the arrangement).

Cons

• Circumstances change. This is more likely to be the case when buying with friends if one party meets a new partner and decide to move in with them or they want to start a family. You need to consider whether you would like any new partner to come and live with you and the likelihood or having to sell or buy them out if they decide to move on.
• There is always the risk of someone falling out. Whether it’s over something minor (some of the strongest friendships end over the smallest things) or something more important – like a missed mortgage payment, for example – it will always be in the back of your mind.
• If you do fall out, can you trust the other(s) to make the necessary payments required for you (or them) to vacate the property? A lot is at stake, and a certain degree of propriety is needed for the situation to be dealt with in a civil and (most importantly) legal manner. You need to choose someone with good business sense, civility, and stability.

Communication is key

Having the foresight to preempt any cohabitation disputes before they arise is vital. Communication and honesty are essential in making this arrangement a successful and long-term one.

Should you have any problems in the run-up to your purchase, while you’re in it, or if you’re trying to leave it, we have a team of experienced solicitors to help you. You can also reach us at either our Manchester office (0161 833 0044) or our Warrington office (01925 210 999).