"Buying a home jointly with three others is doable"

Brendan Burgess

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An interesting article in the Irish Times

Is buying a house jointly with friends a good idea?

Australian TV show Five Bedrooms might be on to something if you can avoid the pitfalls
www.irishtimes.com

But few lenders will deal with multiple parties. “Pre-recession there were many incidences of friends purchasing together but the banks will have since experienced issues where one person moved on, couldn’t pay and [there was a] general change in circumstances. This can lead to issues for the bank if they need to enforce their security,” explains Martina Hennessy of progressive mortgage broker and switcher Doddl.


‘Four is doable’​

Lending to five co-owners isn’t available in Ireland but four is doable, says Ray McMahon, chief commercial officer at specialist lender ICS Mortgages, which funds itself by borrowing from capital markets. He says the owner-occupier market is one it is keen to expand into.

Permanent TSB can also facilitate a mortgage credit agreement for up to four borrowers, explains Leontia Fannin, its head of corporate affairs and communications. “All applications are assessed on a case-by-case basis, subject to suitability of the product, and would be dependent on the specific circumstances of the borrowers.”
 
I've seen this go wrong quite a few times with people who bought with a friend.

In my experience it has often worked out best with a sibling.

Still simplest to buy with someone you are married to or, if you're lucky enough, by yourself!
 
A written agreement beforehand is essential.

It's messy, but it helps people to get on the housing ladder or buy a better house.

Brendan
 
It's a nonsense idea that almost always ends in tears.

The chaos starts when one of the buyers wants to leave because they are changing jobs/emigrating or getting married or one of them wants to move their girlfriend/boyfriend or spouse in. Or where they fail to make payments for maintenance and upkeep. Or where you can't agree on the colour of the hall wall, and on and on and on. A written agreement is not worth the paper it is written on if one of the parties has moved to Australia and isn't coming back.
 
Peanuts20 said:
It's a nonsense idea that almost always ends in tears.
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It is not a nonsense idea.

It often ends in tears.

But failure to buy a house or delaying until you have the deposit in your 40s ends in more tears.

Ideally, buy a home on your own or as a married couple.
If not, buy one with a long term partner but you must have an agreement.
If not in a long-term relationship, buy one jointly with one other person but you must have an agreement and a timescale.
The last resort is to buy with more than one person, but again you must have an exit strategy and timetable.

Brendan
 
If I can afford €200k worth of house , buying jointly with a friend enables us to buy a €400k house.

We might have to sell it when one of us wants to exit. I might not be able to buy him out of his share.

But if three of us buy a €450k house between us, it is more likely that the remaining two will be in a position to buy the exiting partner jointly.

Brendan
 
Are all parties jointly liable for the entire debt? E.g. if I get a 400k mortgage with 3 others and the other 3 disappear, am I liable for the full 400k?
 
time to plan said:
Sounds like a terrible idea in that case.
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I wouldn't agree that this issue renders the whole thing a terrible idea. In the example you give above, the lender will make efforts to pursue all four people. If all three others have vanished (which is not really quite as easy as simply emigrating) then yes, you may be the one left holding the bag. The lender will pursue you. Can you alone keep up the repayments on the full mortgage? If yes, then that's what you do. If no, then a lender cannot get blood from a stone. You'll enter into a negotiation with them which may well involve the eventual sale of the property.

In this example, I don't really see why being on the hook for the full €400,000 or just €100,000 make much difference. A lender is not going to simply let you stay in the house because you can pay a quarter of the mortgage. Collectively you borrowed €400,000.
 
if you can only afford a 200k house, how are you going to be in a position to buy someone out in a couple of years time for another 200k.? Even allowing for the reduced equity, I'm sure the person selling would want to get any capital appreciation of the asset so it's quite possible it could be more then 200k.

as for 3 people doing this, it assumes the 2 remaining want and are in a position to buy out.

Also what happens if one person defaults, mortgage would be in joint names so the rest are liable.

It's a high risk approach dependent on a lot of assumptions for it to be successful. It'll work for some, end in tears for many
 
Peanuts20 said:
how are you going to be in a position to buy someone out in a couple of years time for another 200k.?
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Maybe I did not explain it very well.

If I buy a house for €400k with another person and he exits in 5 years, I may not be able to afford it and the house may have to be sold.

The advantage of buying a €450k house with two others, is that if one want to leave, the other two are more likely to be able to buy him out.

In the first case I have to raise €200k (+/- any change in value)

In the second case, I have to raise €75k (+/- any change in value)

On the one hand, the more people involved in the transaction, the messier it gets.
On the other hand, the more people involved in the transaction, the easier it is to accommodate exits.

Brendan
 
All things being equal, it’s probably not something you’d do.

But all things are not equal.

For example, it’s very difficult for a single person to buy a decent home in Dublin.

This route opens up that possibility.

What’s required is a strong agreement. I’ve never really given it any thought, but it should probably include put and call options for example.
 
The main bones of the agreement should be

  • This agreement is for a minimum period of 5 years
  • No one else shall live in the house without the unanimous agreement of the other parties - other than occasional overnight stays not in excess of x nights a calendar year.
  • If a partner moves out of the house, the others will choose the tenant to replace him
  • The mortgage and other joint expenses are to be paid from a joint account. If any partner is in arrears more than 1 month in funding that account...
  • After 5 years, any party can give 6 months' notice of their intention to terminate the agreement.
  • The property shall be valued by XYZ Valuer and the other parties can exercise the option to buy the share at that price (or at a 10% discount)
  • If they don't exercise the option, the house shall be sold on the open market.
  • In the event of a dispute, our mutual friend AB shall act as mediator and seek to reach a fair agreement.
 
Brendan Burgess said:
But failure to buy a house or delaying until you have the deposit in your 40s ends in more tears.
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The Irish Times had similar articles before the 2008 crash - 2005 Irish Times Article. I wonder how those people fared.

I am not predicting a crash or speculating on house prices but simply noting that it is a sad state of affairs that we are once again at a point where this risky choice has to be legitimately considered as an option.

Ultimately, doesn't this option boil down to risk appetite ?

Burning money on rent until your 40s to save a deposit far from ideal but does provide a relatively predictable outcome.

Going all in on the property market, with the risk of multiple third parties included, surely presents a much higher risk ? The outcome is much less predictable.

As an aside, if enough of these people ultimately fail to ever buy a property, I do not see how the current social contract (debt free with home ownership by retirement) can be sustained.
 
I genuinely can't believe we are back here again. I am all about the numbers but this has so much potential for things to go wrong that the risk is not worth the reward. I don't know what the solution is but to me this would be well down the pecking order unless a property could be easily sub divided and registered as separate properties.
 
And as I recall it was considered a solution for two people back in the day, have we now reached the stage where this has to be doubled to 4???
 
100%

The lesson of 2008 is that such plans turn to toxic dust as soon as recession bites.
 
Raey said:
Going all in on the property market, with the risk of multiple third parties included, surely presents a much higher risk ?
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Hi Raey

If I have €20k and borrow €180k to buy a house on my own, I am taking a big risk.
If I have €20k and borrow €80k and buy a house jointly, I am reducing the risk.
If I stay out of the market completely, I am also taking a risk.

The future is uncertain. There are no risk-free options.

Brendan
 
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