Look forward to sharing ownership of your home with your partner, a family member or a friend when you apply for a joint mortgage. By combining your resources, you may be able to afford a better property than you could if buying on your own.
What is a joint mortgage?
A joint mortgage is taken out by two or more people, with four usually being the maximum number. You may decide to buy a property with your spouse, a parent, a sibling, a business partner or a friend. Each of you will be named on the mortgage as well as the property deeds. As you will be jointly liable for the mortgage repayments, it’s essential that you trust the person you are buying with and are confident that they can cover their share.
Who can you get a joint mortgage with?
You don’t have to live together to benefit from a joint mortgage. Your parent, for example, can help you get on the property ladder by boosting your mortgage options when their income and savings are taken into account. The downside to this is that your parent is then jointly liable for the mortgage. Also, if they are already a homeowner, they have to pay the second property stamp duty surcharge.
Another example is if you want to invest in a property with your business partner. A joint buy-to-let mortgage is a popular option.
You might want to buy a property together with your siblings or friends. Just bear in mind that if you take on a joint mortgage with more than one other person, most lenders will only consider the earnings of two applicants for the affordability checks.
The amount you can borrow
A big advantage to having a joint mortgage is that you can usually borrow more than if you were buying somewhere on your own. With a joint mortgage, a lender will consider your combined incomes.
Generally, when buying on your own, the loan is calculated at up to 4.5 times your income. If your annual income is £35,000, this means you can potentially look to buy a property in Bexleyheath with a mortgage of up to £157,500. However, if you buy with another person who earns £20,000 annually, you can potentially look for a property in Bexley with a mortgage amount of up to £247,500.
As well as your income, other factors are taken into consideration, such as your credit rating and expenditure. When buying a property with more than one other person, only the two highest incomes of the group will usually be taken into account by the lender.
Does a joint mortgage differ from a standard mortgage?
Standard mortgages and joint mortgages tend to have the same rates and fees. However, if you can pool your savings to increase your deposit amount, you can benefit from lower mortgage rates. Lower rates usually become available with every extra 5% that you can pay as a deposit. This has the potential to save you thousands on your repayments.
How your credit score is affected
As well as checking your credit score, the lender will check the credit score of the person you’re applying for a joint mortgage with. If they have a poor credit rating, this could negatively influence the lender’s decision. It may also affect your credit score in the future. This is because your report may show the financial association with that person. If your report shows that you are linked to someone with a poor credit rating, lenders may be reluctant to lend you money.
A late or missed mortgage payment will also be noted on your credit report, no matter who was responsible for paying it. This will make potential lenders wary of granting you a loan.
Types of joint ownership
There are two types of joint ownership — joint tenants and tenants in common.
As joint tenants, you own the property equally. This means that when you sell the property, you receive equal shares of the profit. If you choose to remortgage the property, you have to take out a new mortgage together. It’s important to know that if one of you dies, that person’s share of the property is divided equally between the remaining joint tenants. This is regardless of whether another person has been named in the will to inherit that share.
The option of joint tenants is usually favoured by married couples or partners in long-term relationships. This is because they have peace of mind that their partner will have security in the event of their death.
Tenants in common
If you choose to be tenants in common, each person owns a specific share of the property. Should you decide to move out of the property, you can sell your share. In the event of your death, your share will be passed to the person you have named in your will.
You don’t need to own equal shares as tenants in common. For example, with three tenants in common, two of you might prefer to own 30% each while the third person opts for 40% ownership. A deed of trust will be drawn up by your solicitor to legally specify the percentage owned by each party. Being tenants in common is usually preferred by family members, friends or business partners purchasing a property together.
How to split a joint mortgage
If you no longer wish to have a joint mortgage, there are ways to bring it to an end. You may, for example, have split up with your partner and one of you wishes to move out. If you bought a property with a group of friends, one of you may have decided it’s time to move out and get somewhere on your own. Whatever the reason, there are different ways to split a joint mortgage.
Transfer of equity
This transfers the joint ownership to a single person. The person who wants to remain in the property usually buys out the other person’s share. If you want to buy out the other person, your lender will need to check that you can afford the mortgage payments on your own. If not, you may need to consider a guarantor mortgage. This type of mortgage involves a relative or close friend agreeing to make the mortgage repayments if you’re unable to.
Pay off the mortgage
In some cases, all parties may decide to continue making the mortgage repayments until the entire debt has been paid off. This might be the case, for example, when a couple has split up but one person wants to remain living in the home with their children.
Sell the property
Another option is to sell the property. The mortgage will need to be repaid from the sale proceeds. Bear in mind that the lender may charge you an early repayment fee if you are breaching the terms of your mortgage.