When buying a house, people often team up with their friends, family, or partner to buy a property together, requiring them to apply for a joint mortgage.
If you can’t afford a home alone, joint ownership mortgages could be a good choice. You can team up with a friend, partner or your parents to combine your resources and purchase a nicer property than you could individually. This can also be a helpful option for parents who want to assist their children in getting onto the property ladder.
Joint mortgages can simplify the process if you plan to buy a property. Here are some important things you should know.
What's Included?
What is a Joint Mortgage?
A joint ownership mortgage is a type of mortgage you can apply for with another person, such as a partner, family member, friend, or business partner. With this type of mortgage, both parties will share responsibility for the mortgage debt. Therefore, if one person cannot pay their share, the other person will be obligated to cover the deficit.
Typically, joint mortgages involve two individuals but select lenders to permit up to four people to jointly take out a mortgage, with each person’s name appearing on the property deeds. Having faith in the individual(s), you’re purchasing property with is essential since a joint mortgage is a significant financial obligation.
Joint Tenancy vs Tenants in Common
It’s crucial to consider how you’ll arrange the ownership of the property when applying for a joint mortgage. The mortgage application will ask whether you want to apply as joint tenants or tenants in common.
To determine the best way to establish property ownership, evaluating each option’s advantages and disadvantages is important based on your circumstances. If you’re uncertain about your choice, seek guidance from your solicitor regarding the most suitable approach and any potential tax obligations. The next section offers an outline of how each option functions.
What is a “joint tenancy” mortgage?
If you’re buying a property with another person, taking out a joint tenant’s mortgage is the most common option. This grants both of you equal rights to the entire property, which implies that any gains will be distributed evenly when the property is sold.
It may not be widely known that if one property owner were to pass away, the property would automatically go to the other owner rather than to any family members or designated beneficiaries. Even if a will specifies that the deceased owner’s share of the property should go to someone else, this would not be possible. This arrangement is commonly chosen by married or long-term couples who want their partner to inherit the property upon death.
What do tenants in common mean?
Each person has a specific share if you choose to own your property as tenants in common. If one person wants to sell their share in the future or passes away, their share can be sold or inherited by the person named as their beneficiary in their will.
You don’t have to own the property equally. For example, one person could own 60%, and the other could own 40%. Your solicitor will create a ‘deed of trust’ to specify the exact percentage of ownership for each of you.
Joint Mortgage Calculator: how much can we borrow?
If you and your partner have good incomes, applying for a joint mortgage can be beneficial as it can increase the total amount you can borrow.
How are joint mortgages calculated?
To determine your borrowing capacity, lenders will consider your total income before deciding what is affordable. For instance, they may approve a mortgage worth three times your combined income. Therefore, if you earn £30,000 annually and your partner earns £40,000 annually, your total income will be £70,000. If the lender you have applied to uses a formula that multiplies your income by three, you could potentially secure a joint mortgage of £210,000.
When applying for a joint mortgage, lenders will consider not only your income but also your monthly expenses, any existing debts, and your spending habits. Additionally, they will examine your credit reports to evaluate your past debt management.
How many people can jointly own a property, and how does this work?
Up to four people can jointly own a property, meaning a maximum of four names can be on the property’s deeds.
When multiple people buy a property together, all owners must agree if one wants to sell the property or apply for a loan using its value. Unless a court order says otherwise, all joint owners have the legal right to stay in the property.
If you have a joint mortgage with others, all of you share the responsibility of making the mortgage payments together. This means that if one person doesn’t pay their portion, everyone else has to cover it.
Can I take out a joint mortgage with a friend (or friends)?
You can secure a mortgage with one friend or a small group of up to three friends. By doing this, you can combine your financial resources and make a larger down payment, which would potentially help you get on the property ladder sooner. Moreover, you will be eligible for a wider selection of mortgages offered at lower interest rates.
When buying a property as a group, lenders typically consider the two highest incomes, which could result in a higher borrowing limit than buying individually.
Trusting your friends before buying a property is important since it’s a long-term financial commitment. Discuss the plans and how you’ll handle situations if one of you wants to sell or move out.
Can I take out a joint mortgage with my parents?
Due to high housing prices, it can be difficult to buy a home alone. Many people opt for a joint mortgage with their parents as a solution. This means that the parents’ names will be included on the title deeds, and they will share the responsibility for mortgage payments, even if the child plans to make all the payments.
If your parents already own their own home, this could lead to a capital gains tax (CGT) liability and incur the 3% second home stamp duty surcharge, which is on top of the normal stamp duty rates.
Some lenders offer mortgages on a Joint Borrower Sole Proprietor (JBSP) basis, which allows two incomes to be used, but only put’s the child’s name on the property’s title deeds, thereby avoiding the stamp duty surcharge. Currently, only a handful of lenders offer these, however.
Another option is for parents to act as guarantors, providing security for their children without being named on the mortgage or the title deeds. Seek advice on the best option to suit your needs.
Whose credit score is used when applying for a joint mortgage?
When you both apply for a mortgage together, lenders will evaluate your credit scores to determine your eligibility. If one person has a higher score, it may help the other person, especially if their score is lower. To ensure there are no mistakes, obtaining copies of your credit reports before applying for the mortgage is advisable.
Remember that there are ways to boost your score, like registering on the electoral roll, paying your debts punctually every month, and closing inactive credit accounts.
Joint mortgages & separation/divorce
Several options are available if you’ve taken out a joint mortgage with a partner and subsequently decided to separate or divorce.
These include selling the property and both of you moving out, arranging for one of you to buy the other out, or not changing who owns the property but one of you moving out. Joint mortgage separation can be complicated, so it’s a good idea to seek professional advice if you’re splitting up. Find out more about divorce and mortgages.
How to get out of a joint mortgage
At some point, you or the person you have a joint mortgage with may want to get out of it due to changing circumstances. It could be because of separation or if one of you wants to relocate elsewhere.
Removing your name from a joint mortgage is a complicated process that entails fulfilling several legal requirements. You must ensure that both parties are content with the financial implications involved. Seeking professional guidance on the various alternatives accessible is advisable.
Buying someone out of a joint mortgage
To purchase someone’s share of a joint mortgage, you must buy their share of the property and request a “Notice of Correction” to be filed to remove their name from the mortgage.
To determine the equity each owner has in the property, it is necessary to have the property appraised. This process may be complex if one owner made a larger mortgage payment or contributed a bigger deposit.
Buying someone out can be difficult if you lack sufficient savings. One option may be to remortgage, but you must still be able to make payments independently.
Removing names from joint mortgages
If you want to take your name off the mortgage, start by discussing it with your current lender. This is especially important if your mortgage deal has early repayment charges. You must complete a legal process called ‘transfer of equity’ to transfer your ownership and mortgage obligations to the person keeping the mortgage.
Consult a legal professional before removing your or someone else’s name from the mortgage and title deeds. Taking a name off and transferring equity between parties can be complex and costly, and the remaining person on the mortgage may be required to pay extra stamp duty for taking over the other person’s share.
Transferring a joint mortgage to one person
A common term for switching from a joint mortgage to a sole name mortgage, without borrowing more, is ‘transfer of equity’.
If only one person wants to take the mortgage alone, it is necessary to speak with the lender. It is not guaranteed that the lender will allow for the removal of a name, and they will ensure that the remaining person can afford the mortgage on their own. If the current lender does not agree, another option is to remortgage with a different lender to transfer the mortgage to a single person.
If you want to add a name to a mortgage
If a partner is moving in with you, adding their name to your mortgage may be necessary. Your lender must conduct income and credit checks on the person you want to add to ensure the mortgage will be affordable for all parties involved.
It’s important to consider that if you include someone in your mortgage, their credit history will merge with yours. This could have a positive impact if their score is great, but if their credit history is poor, it could harm your ability to obtain credit in the future.
If you and your partner or spouse are not committed to your current mortgage agreement, you may want to consider remortgaging with a new lender and including both of your names on the new mortgage. To learn more about this process, read about adding partners or spouses to an existing mortgage.
Frequently Asked Questions
1. What is a joint mortgage?
A joint mortgage is when you borrow money to buy a home with someone else. You will own the property and be jointly liable to pay the mortgage².
2. What are the pros of getting a joint mortgage in the UK?
The pros of getting a joint mortgage in the UK include being able to borrow more money, having more buying power, and sharing the costs of buying and owning a home¹.
3. What are the limitations of getting a shared mortgage?
The limitations of getting a shared mortgage include being jointly liable for the mortgage payments, having to share ownership of the property, and having to agree on what happens if one person wants to sell their share³.
4. What are the steps included in joint mortgage application?
The steps included in joint mortgage application include finding a lender, deciding how much you can afford to borrow, choosing a type of mortgage, filling out an application form, and providing documentation¹.
5. What are the alternatives of shared mortgages?
The alternatives of shared mortgages include guarantor mortgages, where someone else guarantees your loan repayments; family offset mortgages, where your family deposits savings into an account linked to your mortgage; and shared ownership schemes¹.
6. How do I apply for a joint mortgage?
To apply for a joint mortgage, you will need to find a lender that offers joint mortgages and fill out an application form. You will also need to provide documentation such as proof of income and identification².
7. Can I get a joint mortgage with bad credit?
It may be possible to get a joint mortgage with bad credit if your co-borrower has good credit².
8. Can I get a joint mortgage if I am self-employed?
Yes, it is possible to get a joint mortgage if you are self-employed. You will need to provide documentation such as tax returns and bank statements².
9. Can I get a joint mortgage if I am not married?
Yes, you can get a joint mortgage if you are not married. You can apply for a joint mortgage with anyone who is willing to share ownership of the property and be jointly liable for the mortgage payments⁴.
10. What happens if one person wants to sell their share?
If one person wants to sell their share of the property, they will need to agree on what happens with their co-borrower(s) and follow the process outlined in their agreement or contract³.
References:
- How do joint mortgages work? | money.co.uk. https://www.money.co.uk/mortgages/how-do-joint-mortgages-work
- Joint Mortgages in the UK: Eligibility, Pros and Cons, and Alternatives. https://www.needingadvice.co.uk/joint-mortgages
- Joint mortgages guide: how to buy property with a partner https://www.idealhome.co.uk/property-advice/joint-mortgage-guide-306372
- Joint Mortgages Explained | Lloyds Bank. https://www.lloydsbank.com/mortgages/help-and-guidance/mortgage-types/joint-mortgages.html
