Sometimes it’s better to club together than fly solo to achieve your goal.
Teaming up with friends, family, a partner or spouse to get a joint mortgage can increase your spending power and improve your chances of getting your dream home.
Average property asking prices exceeded £360,000 in April breaking previous records so it’s plain to see why joint mortgages are so popular and, in many cases, essential to getting on the housing ladder.
But before we explain the different types of joint mortgages, let’s get the nuts and bolts out of the way first.
Joint mortgages - the facts
A joint mortgage usually refers to two people named on a mortgage but you can have up to four. You can be family, romantically attached or just mates.
Being named on the mortgage usually, but not always, means you own the property too.
Everyone named on the mortgage is equally liable to pay the whole mortgage payment.
You can be registered as joint owners which means you both own 100% of the property and automatically inherit each other’s share when you die.
Or you can be listed as tenants in common - usually preferred by friends or family buying together.
Tenants in common can own different shares in the property, for example a 60/40 split. They won’t automatically inherit the other owner’s share when they die.
Benefits of teaming up
Taking out a joint mortgage offers lots of benefits.
Combining your savings means you have a larger deposit to buy a more expensive house. Or you could buy a cheaper house and use your boosted deposit to reduce the size of the mortgage you need and by reducing your LTV which is also likely to reduce the interest you can secure.
Teaming up could also increase the mortgage amount you’re offered. There’s lots of factors that influence how much you can borrow – but a major one is how much you earn.
Whilst it can vary from lenders, one might be prepared to offer you a mortgage that is four times the amount of your annual salary, for example. If you earn £30,000 a year that means you can borrow £120,000. But if you and your partner earn £30,000 a year each you could borrow £240,000 (four times your combined salary).
Joint mortgage but only one income
It’s quite common for joint borrowers to only declare one income on a mortgage application, particularly if someone is staying at home to look after a young family.
The mortgage lender only assesses the income and outgoings that relate to the earner but both borrowers are credit checked.
If the non-earning partner plans to return to work in the future this can help support the mortgage application.
If you’re in need of an income boost to afford a home you can ask family or friends if they’ll join you on the mortgage as a guarantor. Their income will be added to yours which may increase the size of the mortgage you’re eligible for. You’ll need a minimum 5% deposit.
They aren’t, however, named on the property title deeds which makes you the sole owner. This new-style guarantor arrangement is known as joint borrower sole proprietor (JBSP), but we call them an Income Boost mortgage at Tembo.
Being named on the mortgage means they are equally liable to pay the whole monthly mortgage payment. So if you’re not able to pay, they will have to step in.
Because your guarantor is taking a risk without the benefit of being a property owner they must take independent legal advice first.
Buy for uni mortgage
Another parent child joint mortgage is a buy for a uni deal. To help with university living costs and invest in their future, parents can take out a joint mortgage with their child to buy them a house or flat.
It’s set up a like a JBSP mortgage but lenders will lend up to 100% of the purchase price. Spare rooms in the student house can be let out to help pay for the mortgage. If you’re borrowing more than 80% of the purchase price, family members must either deposit cash savings with the lender or agree to a legal charge being registered on their own home for a fixed sum.
Parents or friends can help you buy a home without joining you on the mortgage. Using a Family Springboard mortgage or similar, first-time buyers can purchase a home without any deposit.
Instead, parents or a helpful friend can deposit savings equal to 10% of the purchase price into a savings account with the mortgage lender. The savings, which earn interest, are held by the lender for between three and five years before being released.
Barclays, Halifax and Lloyds Bank all offer family mortgages.
If you don’t keep up to date with your mortgage payments, your family or friend’s savings are at risk. They will not get their savings back until you have caught up with your commitments and have shown you are back on track. The lender can use some of their savings to clear your arrears if necessary.
Your mortgage partner
Choose your mortgage partner wisely. By taking out a joint credit agreement your partner will be listed on your credit file as a financial associate.
That means lenders can view the credit history of any financial association who pops up on your credit report even if you’re applying for a loan by yourself. Their bad conduct could influence your application.
If your mortgage partner has a low credit score or has experienced financial problems it could decrease the amount you can borrow. You’re also likely to be offered a higher rate of interest.
When taking out a joint mortgage with someone much older than you, their age could reduce the term you are offered from say, 30 years to 20 years, thus increasing the monthly costs. Please note that the mortgage is secure on the property and the home may be repossessed in the event that you do not keep up with payments.
Words by Samantha Partington