Friends ’til the bitter end
Young Irish people are increasingly trying to avoid paying ‘dead money’ in rent by pooling their cash with friends and family to get a mortgage. This may seem like the ideal way to get one foot on the increasingly extended property ladder, but buyers should not be too trusting of their friends’ goodwill.
According to a recent study by Bank of Ireland, 89% of first time buyers taking out loans with the bank in the first quarter of this year were either married or co-habiting. This was a 3% increase on the same period in 2004. A survey by IFG Mortgages released in August concluded that while a few years ago 95% of joint applications were from married couples, joint applications from two or more friends and siblings are now increasingly common.
The reason for the lack of figures on friends or siblings is that if the partners applying for a mortgage aren’t married, generally the mortgage adviser won’t pry into their personal life, according to Padraig Harris, sales manager with IFG. A figure of 5% would be “a stretch,” he says. “More and more you will have two girls or two friends and they don’t want to get married,” he says. The arrangement tends to last for about three or four years, but eventually someone may “meet someone” and decide they want to set up house with their new love of their life. There are no extra conditions for arrangements with friends or family.
Olive Moran of Bank of Ireland quotes a figure of around 3% of all first-time buyers and also says there are no extra requirements. The bank just wants to be confident that all parties would be able to meet repayments given a sharp increase in interest rates. She stresses the need to take legal advice and sign some kind of ‘pre-nup’ agreement.
Gayle Patton, a solicitor with Roger Greene & Sons in Dublin, says that one needs to be careful when broaching the subject, particularly with couples, but it is best to sign some kind of legal agreement “in case something goes wrong”. She provides the parties with a standard legal agreement and then tailors it to their needs. It might cover such things as how much capital each person contributes to the house; what proportion each pays of the mortgage; who owns what contents; how the sale proceeds are to be divided; and how the bills are to be divided. Some people want a clause saying that one party may not rent out his or her part of the house. However, Patton says she has never had to enforce one of these contracts – at least not yet.
Case study: Brian, 25, trainee accountant living in Dublin
It’s hardly surprising that an accountant would find a way of avoiding paying rent, so with two schoolfriends Brian decided to buy an apartment in a new development off Amien’s St and quite near the IFSC – an area where rents are relatively high. Also unsurprising for three young Dubs, all still live with their parents while they wait for the three-bed to be finished “any day now”.
They bought it off the plans over a year ago and there has been a delay of about four months (not bad really) but they won’t start making mortgage repayments until they move in. The only difficulty was for the three, who were only a year out of college, to get the 10% deposit together, which they did with parental help. They went to a solicitor and signed a partnership agreement which, among other things, says that only when two of the three want out will they sell. Brian says that while everything is hunky dory, he slightly regrets buying so early. This is because he, again like so many young Irish, wants to take a year off and travel around Australia. Another friend will live in his room at a below-average rent, but one which will cover his repayments. He also says he wants to own a house by the time he is 30, and will ultimately have to sell the apartment. So he sees himself as “effectively renting” it in the meantime. However, anyone who is actually renting an apartment from a landlord may not see it like that.