Could teaming up be the key to getting on the property ladder?
With house prices at record levels and continuing to go up and up, the dream of owning a home is becoming more of a nightmare for many would-be buyers.
In response, a growing number of people are exploring alternative paths to home ownership. One of the latest trends? Taking out a mortgage with not one, but three other people.
A four-person mortgage might sound extreme. But in an era of sky-high prices and squeezed borrowing power, some are beginning to see it as a practical way to pool their resources and get a foot on the property ladder.
But while the prospect of being able to borrow more — and buy more — is tempting, it also comes with some serious risks and complications.
So is it a smart workaround? Or a potential recipe for disaster?
Is it a good idea?
With property prices continuing to creep ever higher, teaming up with another couple or group of friends to try get on the property ladder might seem like a good short-term solution.
The main advantage is the increased borrowing power. Central Bank mortgage lending rules limit first-time buyers to borrowing a maximum of four times their gross income. So if you’re earning €50,000 a year, you can only borrow €200,000, which will make finding a property in any of the main towns and cities a challenge.
But with a four-person mortgage, presuming everyone earns around the same amount as above, you could borrow up to €800,000 — enough for a four-bed home in even the nicest of locations.
While sharing a mortgage, and of course a home, with three others (and all their friends who might be visiting) would be some people’s worst nightmare, many people in Ireland are already living in cramped and fairly dire housing conditions. And paying through the nose in rent for it.
So you can understand why this type of arrangement will appeal to some.
But it carries big risks.
Friendships end. Couples break up. Life changes. Things could get very messy if one or more of you want to sell or move out of the property in the future. And if someone dies, things can get even messier as tax inheritance issues can also arise.
It’s also really important to note that everyone is on the hook individually for the entire mortgage amount. So if one or more of you stops making payments, the bank can come after you for the entire mortgage — not just your share — and your credit rating could be impacted.
So getting good financial and legal advice is paramount. There should also be a firm written agreement among everyone as to what happens if someone wants to move out or sell. A commitment that everyone agree to stay in the priority for a set number of years is also wise. And while it might seem extreme or even pedantic, some rules around who can visit and stay over should even be considered.
Should this be allowed?
Coupled with mortgage terms now lasting up to 80 years, as well as the re-introduction of interest-only mortgages, it feels like mortgage lending is harking back to the bad days of the Celtic Tiger. And we know how that turned out…
However lenders are largely just responding to consumer demand and changing lifestyles. Rather than ban these mortgage features, we need to look at ways to reduce construction costs and increase housing supply.
And we also need to urgently invest in our water infrastructure and electricity grid, so that these don’t become blockages to home building too.
Get your mortgage and the best advice with bonkers.ie
If you’re hoping to get your foot on the property ladder over the coming year, or are looking to save money by switching to a different lender, remember that bonkers.ie is here to help. We're more than just a comparison service!
With our mortgage broker service our team of experienced financial advisors here in Dublin can help you with your entire mortgage journey — from application to drawdown.
We work with the country's top lenders so can find you the best mortgage rate for your particular circumstances. We can also apply to multiple lenders at the same time on your behalf, increasing your chances of getting approved for a mortgage, and saving you the time and hassle of having to apply to numerous lenders by yourself. And we can advise you on whether a four-person mortgage is a suitable option for you or whether availing of schemes like the First Home Scheme or the Help-to-Buy scheme might enable you to get a mortgage by yourself.
We can also help you with getting mortgage protection and home insurance which are requirements for getting a mortgage in Ireland.
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