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What is a joint mortgage?
A joint mortgage is a loan for a property in the name of more than one person. It’s very common for two people to take out a mortgage together, but sometimes up to four people can be on the same mortgage. Everyone named on the mortgage is equally responsible for paying back the loan. There are two main types of joint mortgage when it comes to how much of the property you own: tenants in common, and joint tenancy.
What different types of joint mortgage are there?
There are two main types of joint mortgage:
Joint tenants
A mortgage taken out as joint tenants means that all of the borrowers are recognised as a legal owner, and all have equal rights to the property. This is common for couples buying a property together and is probably this is the simplest kind of joint mortgage for solicitors.
If one of you dies, the other person(s) would inherit the deceased person’s share of the property, even if it was bequeathed to someone else in a will.
If you remortgage the property, you can’t easily change to a single mortgage.
If you sell the property, profits will be split equally between you.
Tenants in common
A “tenants in common” joint mortgage is more common when friends, family or business partners buy property together. With this type of mortgage, you all own separate shares in the property, rather than both of you owning the whole property.
- You can split the equity in the property as you wish, it does not need to be a 50/50 split
- You can sell your share of the property as you wish
- You can bequeath your stake in the property to someone else in your will.
A solicitor would draw up a “deed of trust” which legally declares the percentage of the property each of you own.
Who is eligible for a joint mortgage?
There are no requirements on who can apply with who for a joint mortgage. You do not need to be related or in a relationship with a person you are applying with. However, if one of you has a problem with their application, such as an adverse credit history, the whole application could be declined.
You need to know and trust the person well, because if someone you’re named on the mortgage with struggles to pay their share, it could affect your credit rating for a long time.
What are the advantages of a joint mortgage?
You may be able to borrow more.
If you are applying for a mortgage with someone else, lenders will assess both of your incomes in reviewing your affordability. This generally means that you can borrow more. However, they will also review both of your outgoings, which is worth bearing in mind if only one of you is working.
If you are applying as more than two people, a lender usually only reviews the incomes of the two highest earners.
You may be offered better interest rates.
In general deposit requirements and interest rates are the same whether a person applying is an individual or applying with someone else. However, if you are both able to contribute towards a deposit, you are likely to be able to save a larger deposit than one person applying alone. A larger deposit means your mortgage will be a lower loan-to-value ratio (e.g., with a 15% deposit, your mortgage would be a 85% LTV, whereas with a 25% deposit, your LTV would be 75%). A lower LTV ratio generally means better interest rates for the borrower, as the lender is taking on less risk with the loan.
What are the disadvantages of joint mortgages?
You’re in a legally binding relationship with the other people on the mortgage. If one of you stops contributing to repayments, you’ll need to make up the difference. The lender sees no difference in who is making the repayments.
It will also make it more complicated if one of you wants to move out, and you’ll need to agree on renovations, bills and other payments. You should also have a plan in place for if one of you were to lose their income, what would you do?
The person you are applying with will be named on your credit file as a “financial association”. If they have poor credit now or in the future, it could affect any credit you apply for now and in the future. If that person misses payments, it will show on your file as a missed payment, even if you were paying your share on time.
What happens if one of us wants to leave the joint mortgage?
People want to leave joint mortgages for many reasons: couples may separate, business partners may wish to buy each other out, and friends may choose to move out. The person leaving the mortgage is legally entitled to their share in the property
Sell the property: if you both wish to move out, selling the property will allow you to pay back the lender. However, if you are still in the introductory period of your mortgage, paying it off early will usually incur an Early Payment Recharge (ERC)
Transfer of equity: if one of you wishes to stay in the property, they may choose to “buy out” the person moving out. This is a legal process that transfers the ownership of the property from the person leaving to the person(s) retaining ownership.
Take no action: for personal reasons, the person moving out may be happy to keep contributing to mortgage payments. This may be the case for a couple with children who are splitting up, so one parent can remain in the family home with the children.
Is it a good idea to get a joint mortgage with my parents?
Many young people today struggle to get a foot on the property ladder with property prices so high. This can be even harder if the young person has not been able to build up any credit history.
However, a joint mortgage may not be right for everyone. There may be disagreements over redecoration and renovation, as parents may see the property as an investment, while the occupiers see it is a home to enjoy. Age may also be an issue, as many mortgages have a maximum age limit when applying, considering that the mortgage period may be 25 years.
There are also further financial implications for the parents, who may have to pay stamp duty on a second property, and capital gains tax when the property is resold.
There are other arrangements which may be more suitable, such as a guarantor mortgage, or a “family link” or “family boost” mortgage, where the parents pay the deposit in the form of a secured loan. This type of mortgage is useful if the individual is struggling to save for a deposit, but could afford mortgage payments.
There are also some specialist mortgage products called “joint borrower, sole proprietor” (JBSP) mortgages, where only the child is named on the property deeds, although both have responsibility for repayments.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
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Last updated 29 February 2024