If you’re single, tired of house-shares and longing for a place of your own, buying with a friend can appeal. You may qualify for a bigger mortgage with two incomes, you can share household expenses and will probably be paying less than you did in rent. What’s not to like?
There is no doubt that single house-buyers in this country are up against it. For a while the median or middle income of property buyers in this country, single individuals or couples, was €71,300, according to Central Statistics Office (CSO) figures for 2021, while the average income is about €45,000.
Couples, meanwhile, have the simple advantage of two salaries and savings pots to bulk up their budget and cushion their costs.
Single purchasers, on the other hand, will have to have very healthy funds, save for longer or tweak their search parameters. The areas of Ringsend, Irishtown, Sandymount, Ranelagh, Rathmines, Terenure and Rathgar have the highest median income for sole transactions at €79,200. Buncrana in Donegal has the lowest median income for sole transactions at €29,600.
The median age of home purchasers in Ireland in 2021 was 39, up from 35 in 2010. This may indicate that more are now coupled up before they can buy.
If you are single and desperately seeking your own place, you’ll do it sooner in Donaghmede. At 34, this area has the lowest median age for sole transactions, according to the CSO. Kilmuckridge in Wexford was highest at age 55, possibly pushed up by retired people.
Getting a mortgage
When taking out a mortgage with a friend, be prepared to get to know each other’s finances intimately. In a joint application, everything from your salary, to savings, to spending habits will be visible to you both.
A joint mortgage is not a 50-50 arrangement, says Trevor Grant, director of Affinity Advisors and chairman of the Association of Irish Mortgage Advisors.
“If you borrow money for a house with another person, you are jointly and severally liable for the debt. You are not just responsible for 50 per cent,” he says.
The bank doesn’t care how much or how little each of you has contributed to the purchase. If you fall out with your friend, they disappear or refuse to pay, the bank will go after you for the full amount.
If you can’t pay, your former friend’s rogue moves can leave your credit rating in tatters.
If one of you wants to switch rates, take a mortgage-payment break or go interest-only at any stage in the mortgage term, you’ll both have to agree to that too.
If you want to cash in your equity and emigrate, with your friend agreeing to buy out your share, banks can be cagey about that too. “Banks are very reluctant to take people off the mortgage title, even if you can afford the mortgage on your own. It weakens their security,” says Grant.
Your only option in that case might be to get mortgage approval from another lender and switch the mortgage to them.
Make it legal
Buying with a friend will boost your budget, but it isn’t for the faint-hearted. Some friends who pooled resources to “get on the ladder” 20 years ago are still feeling the fallout.
“In 2005, there was loads of this going on. People signed up to various arrangements. We have seen such a fallout from that over the past 10 years. So many disputes have arisen,” says Niamh Moran, partner at Carmody Moran Solicitors.
“If friends buy a property together in their late 20s, life can change very quickly within a decade,” says Moran. If one of the friends falls in love and wants to form another household, three can become a crowd.
The property crash and the resulting negative equity added complication. “It wasn’t possible to say, ‘We can sell it’,” says Moran. “We would still have some cases that we are resolving.”
If you are buying with a friend, how you do it has legal consequences, she says. You have the option to acquire the property as “joint tenants” or “tenants in common”.
If you own the property as joint tenants, should one of you die, your friend gets the property, not your family.
However, if you are tenants in common you can be more specific. For example, you can set out that one of you owns 60 per cent of the property and the other 40 per cent. If you die, your will and the laws of succession will determine who gets your share.
If you want your family and not your friend to inherit your share of the house, being tenants in common is the way to go.
It is also worth putting in place a business-like commercial arrangement known as a “co-ownership agreement”, says Moran. That can set out how you will pay bills, expenses, taxes, or deal with the sale of the property and any disputes.
If one of you has contributed a bigger share of the purchase price, due to a gift from family or an inheritance, the agreement can protect that investment, says Moran. It can clearly state how things will work if there is a dispute or if one of you dies, for example.
Should you wish to sell, your agreement might give your friend the first option to buy your share. In the event you can’t agree on a price, your agreement might specify that you will go to arbitration or mediation to try to resolve things more speedily and less expensively than through the courts.
“I’ve acted in these cases, and you are talking up to €15,000 [in legal costs] – that’s a huge amount of money for people to take out of the proceeds of selling their home,” says Moran.
The main thing for friends buying together is to thrash things out before signing on the dotted line, she says. Both parties should get independent legal advice.
“Where friends have committed to an arrangement through a solicitor, I don’t tend to see those people again,” says Moran. “Everyone knows what they are getting into. People who talk it through first don’t tend to fall out.”
Buying with a partner
Most couples live together before signing up for marriage. So why not buy a place together instead of renting? If you go this route, it’s wise to put some protections in place, says Moran.
Couples living together for five years who don’t have children, or those living together for two years who have a child, become “qualified cohabitants” under family law legislation.
However, the couple can agree to an “opt-out” by putting in place a “cohabitation agreement”. This is a bit like a prenuptial agreement, says Moran.
Individuals who have seen the financial fallout when their own parents split, or those who are investing more than their partner in a property, often go this route, she says.
The cohabitation agreement allows a couple to regulate matters between themselves, outside of the legislation, says Moran. The time to agree to the opt-out is before you complete the purchase of the property, she says.
If you are buying with a friend, consider the tax implications too.
Owning a home means paying local property tax (LPT). Joint owners must nominate one of the parties as the “designated liable person”, responsible for making the return and the payments. If the LPT is not paid, Revenue can go after either of you for what’s owed. If one of you stops contributing, the other is on the hook for the full amount.
You could rotate this responsibility between you if you like, contacting Revenue’s LPT branch to change the names, says Marian Ryan of Taxback.com.
If you bought the property intending to rent out a room, you can earn up to €14,000 a year tax free on that income. The property must be your main residence, however.
“You and your friend cannot both earn €14,000 a year, however, this is divided equally between you both, so you can only earn €7,000 each, tax free,” she says. If the house is a four-bed and you intend renting out two rooms, the relief is still capped at €14,000.
If the property is your main residence and you decide to sell, you can claim principal private residence relief and not pay any capital gains tax, says Ryan. However, if you let the property out and sell it in the future, capital gains tax may arise. Any gain made on the property will be based on your percentage ownership.
First-time buyer status
Being a first-time buyer has one-off benefits. Be sure to spend those chips wisely. If you and your friend are both first-timers, you are eligible for valuable incentives such as the Help to Buy scheme and higher loan-to-income limits for first-time buyers.
“If in the future you’d like to buy a home of your own or with a partner, you will no longer be deemed a first-time buyer,” says Ryan. “Higher loan-to-income limits will apply and you will no longer be eligible for many of the first-time buyer incentives.”
You don’t want to lose your first-time buyer status to just anyone.