Hi, any advice on the following would be appreciated. We (married, 2 small kids) would like to buy a house in South Dublin. We have an OK deposit (€80k) but can only get €120k mortgage due to single income with kids even though my husband has a good job! We currently pay almost 3 times in rent what the bank calculates we can afford on a mortgage! A couple who are friends of ours who have no mortgage (own their own house, grown up kids etc) are interested in purchasing a house with us. It would be an investment for them but we would live in it. We would contribute €200k-ish - it would potentially be 2/3 owned by us 1/3 them or 50/50, depending on house price. This is a means of getting on the property ladder rather than finding our dream family home so selling on after a few years would be fine if we can't buy them out. I'm just wondering how we might go about this as we wouldn't have a joint mortgage - we would each just partly own the house - us through mortgage/cash and them through cash. We're at very early stages of discussion and would definitely get finer details and paperwork covered through solicitors if we did go ahead….I just can't seem to find a precedent for this kind of idea on any forums! Any advice?
Purchasing a house with a friend for me to live in
- Thread starter Vaughny
- Start date
Brendan Burgess
Founder
- Messages
- 52,268
A lot can go wrong. When two people buy a house together, they can fall out and it's very difficult to resolve. If two couples buy a house together, the problems are really magnified.
If you buy together, their names will probably have to be on the mortgage. If you get into trouble,their credit rating would be damaged. When they want to sell, you would probably have to sell, but you could minimise that problem by insisting on a minimum period of 5 years with 6 months' notice after that.
The simplest thing here would be for them to lend you €100k with you paying interest of 4% on the loan. They would be entitled to 1/3rd of any increase or decrease in the value of the property when they want to cash their investment. Unfortunately, that would be taxed as income rather than as capital gains which might not suit them.
The beauty of this arrangement is that they can cash part or all of it easily enough. If your finances improve you can repay part of their loan.
If they are doing it from an investment point of view, as distinct from just trying to help out friends, they would be much better off buying themselves. If they keep the property for 7 years, they will be exempt from CGT on any capital gain.
If you buy together, their names will probably have to be on the mortgage. If you get into trouble,their credit rating would be damaged. When they want to sell, you would probably have to sell, but you could minimise that problem by insisting on a minimum period of 5 years with 6 months' notice after that.
The simplest thing here would be for them to lend you €100k with you paying interest of 4% on the loan. They would be entitled to 1/3rd of any increase or decrease in the value of the property when they want to cash their investment. Unfortunately, that would be taxed as income rather than as capital gains which might not suit them.
The beauty of this arrangement is that they can cash part or all of it easily enough. If your finances improve you can repay part of their loan.
If they are doing it from an investment point of view, as distinct from just trying to help out friends, they would be much better off buying themselves. If they keep the property for 7 years, they will be exempt from CGT on any capital gain.
My advice is not to go down this road.
Can you post up your salaries and rent, I'm curious as to why the bank calculates your repayment capacity at one third of your current rent, particularly considering you have been saving a large amount.
I recommend you try a broker, maybe you are not presenting yourself the right way to your bank.
Can you post up your salaries and rent, I'm curious as to why the bank calculates your repayment capacity at one third of your current rent, particularly considering you have been saving a large amount.
I recommend you try a broker, maybe you are not presenting yourself the right way to your bank.
dereko1969
Registered User
- Messages
- 3,046
Have we learned nothing from the past few years?
What Ladder?
Have you no friends/family who bought in the back-end of nowhere to "get on the ladder" who are now stuck there?
Sorry OP but you really need to cut your cloth to what you can afford on your own or keep renting and saving.
Brendan Burgess
Founder
- Messages
- 52,268
But as Vaughny points out, it is a lot cheaper to pay the interest on a mortgage than the rent on a property.
Brendan
Brendan
I think such an arrangement could be structured in a number of ways.
1) Couple 1 and couple 2 own the house jointly. This is what the OP has described above. I think this is a non runner as the OPs bank will not give a mortgage under these circumstances.
2) The second option would be for the "friends" to give a loan which will enable the OP to purchase the house. The loan could be secured by way of a 2nd mortgage on the property. Its possible that this might work.
I certainly agree with others that theses type of arrangements with friendscan often be difficult and many turn sour. Having said that the OPs friends have a lot more to lose than the OP and for that reason I think it might be a good move for the OP.
1) Couple 1 and couple 2 own the house jointly. This is what the OP has described above. I think this is a non runner as the OPs bank will not give a mortgage under these circumstances.
2) The second option would be for the "friends" to give a loan which will enable the OP to purchase the house. The loan could be secured by way of a 2nd mortgage on the property. Its possible that this might work.
I certainly agree with others that theses type of arrangements with friendscan often be difficult and many turn sour. Having said that the OPs friends have a lot more to lose than the OP and for that reason I think it might be a good move for the OP.
dereko1969
Registered User
- Messages
- 3,046
True, but this site is full of posts from people who either went guarantor or were jointly and severally liable with friends/family where it's gone wrong. How can this be avoided in the OP's case? Even then, will the bank agree to it?
Brendan Burgess
Founder
- Messages
- 52,268
I was specifically responding to this point. There is a lot of merit in getting on the property ladder because it's cheaper to rent money than to rent property.
The fact that many guarantees have gone wrong and that many joint purchases have gone wrong, does not mean that these are intrinsically bad.
Brendan
Folks this is an aspirational discussion. No bank will finance this deal as proposed by the OP. Dr Debts point is reasonable, but is reliant on the "friends" being prepared to have no ownership interest in the property. 2nd mortgage would be a poor return for the risk they would be taking. Any decent solicitor would advise them against this course of action. Ideal solution is for the friends to buy the property 100% and then agree some type of arrangement with the OP where partial ownership will transfer subject to regular payments being made!
Thank you for all your replies so far…very helpful. To clarify a couple of points, our friends are not looking for an investment property on their own - their main motivation would be to help us out and hopefully (I say hopefully) it would also be beneficial for them.
I'm to be honest a bit confused by how them lending us the money would work but am open to the suggestion…would we repay the loan from them or just pay interest on the loan? I imagine that would work a little like 'rent' for their portion of the house…if we were repaying the loan as well then would their relative ownership of the house also reduce? Would that be a reasonable assumption? Sorry if that sounds like a dumb question.
[New to this forum - can't quite work out how to quote as you have done]
Dr Debt's post:
2) The second option would be for the "friends" to give a loan which will enable the OP to purchase the house. The loan could be secured by way of a 2nd mortgage on the property. Its possible that this might work.
How would this work when we are v limited on what the bank will lend us?
RE our finances, the bank said it was because there was only one income and therefore 3 'dependents'. FYI if it's helpful to the discussion, salary is 42.5k up to 70k with commission (which they'll allow 25% of - another reason for limited borrowing potential) but which is hit reliably. Rent is €1600. According to the bank we can afford €600.
I'll probably think of something else to say in a minute but I'll post this anyway.
I'm to be honest a bit confused by how them lending us the money would work but am open to the suggestion…would we repay the loan from them or just pay interest on the loan? I imagine that would work a little like 'rent' for their portion of the house…if we were repaying the loan as well then would their relative ownership of the house also reduce? Would that be a reasonable assumption? Sorry if that sounds like a dumb question.
[New to this forum - can't quite work out how to quote as you have done]
Dr Debt's post:
2) The second option would be for the "friends" to give a loan which will enable the OP to purchase the house. The loan could be secured by way of a 2nd mortgage on the property. Its possible that this might work.
How would this work when we are v limited on what the bank will lend us?
RE our finances, the bank said it was because there was only one income and therefore 3 'dependents'. FYI if it's helpful to the discussion, salary is 42.5k up to 70k with commission (which they'll allow 25% of - another reason for limited borrowing potential) but which is hit reliably. Rent is €1600. According to the bank we can afford €600.
I'll probably think of something else to say in a minute but I'll post this anyway.