House prices are skyrocketing in the UK as compared to earnings. Hence, it is not wrong to say that joint mortgages are a suitable option to own a house. When a house is bought with a joint mortgage, you are jointly liable for the mortgage.
So what are homebuyers doing? According to a Halifax report — they are teaming up. In fact, almost two-thirds of first-time buyers in the UK now purchase property in joint names.
A joint mortgage can be taken out with friends, partners, or family members.
Usually, only two people take out a mortgage, but some providers allow up to four.
There are two ownership models: tenants in common and joint tenants.
All borrowers are responsible for payments.
Joint borrowers become financially linked.
What Is a Joint Mortgage?
A joint mortgage is similar to a regular mortgage with one difference i.e. it’s shared among individuals. Most lenders allow joint mortgages to be shared by two people, but some allow up to four people.
Getting on the property ladder is one of the main reasons people apply for joint mortgages. Usually, when more people combine their savings, they are able to build up a larger deposit, which could provide them with access to better deals.
A joint mortgage means all of the borrowers become owners of the property. They all are responsible for paying, thus, they become financially linked. This means their credit scores become interdependent.
In other words, if one of the borrowers misses a payment, this can affect the credit score of the other. Basically, a joint mortgage is only for people who trust each other to make large financial moves together.
A joint mortgage is a major step and also a risk for all parties — so applying with people you can rely on is crucial.
Who Can Get a Joint Mortgage?
People apply for joint mortgages with their partners, friends, or family members. It’s most common to apply with a partner, however, you can also apply with your family members, especially parents or siblings, and in some cases, friends.
Usually, this happens when the property they are looking for is on the expensive side.
In any case, lenders will let you apply for a mortgage with a friend or family member as long as you both fit the criteria. In some cases, lenders might require all of the borrowers to be employed, although some may let you take a joint mortgage with someone who is retired.
Different lenders have different maximum age requirements. For many, the maximum age of the applicant is 70 and the limit can also vary depending on the property. For example, some issue mortgages for a buy-to-let property with an age limit of 80.
How Much Can You Borrow With a Joint Mortgage?
With a joint mortgage, you can typically borrow at most 4.5 times your joint gross annual income. Some lenders let you borrow five or even six times your joint annual income, but according to the regulator, this is only allowed for 15% of loans and is usually reserved for top earners.
Additionally, if you apply with more than one person, the lender will usually take the income of the two highest earners to calculate the mortgage. Still, other people can pitch in with the deposit and help you get better rates.
Let’s see how much you can borrow with different combined salaries:
Combined Income | x4 | x4.5 | x5 |
|---|---|---|---|
£40,000 | £160,000 | £180,000 | £200,000 |
£50,000 | £200,000 | £225,000 | £250,000 |
£80,000 | £320,000 | £360,000 | £400,000 |
How Does a Joint Mortgage Work?
Taking out a joint mortgage with someone means you are both (or all) responsible for paying it back. In other words, if your spouse or family member runs into financial trouble, it’s your duty to pay up.
However, the rights you have will depend on the ownership model you choose. There are two joint ownership models to choose from:
Tenants in Common
Tenants in Common is a joint ownership model in which each party owns a share of the property. Depending on the amount of money put into the property, the shares can be equal or one person could own 60% for example, while the other owns 40% (when there are two owners).
Do both owners have equal rights? Not necessarily. Depending on the share each co-owner has, profits from selling the property are divided proportionately.
Is it one mortgage or more? While each owner can get a separate mortgage for their share in theory, however, in practice, people usually share a single mortgage.
Who usually uses it? Friends, family members, or partners who wish to keep their shares somewhat separate.
How does inheritance work? If one of the co-owners passes away, their share will go to the person they left it to in their will.
Joint Tenants
Joint tenancy means all owners are treated as single owners in the eyes of the law. In other words, each of you owns 100% of the property.
Do all owners have equal rights? Yes. All owners have equal rights to the property and each owns 100% of it. If you decide to sell the property, you get equal shares of the equity.
Is it one mortgage or more? Joint tenants can buy the property with only one mortgage.
Who usually uses it? Usually, long-term partners or married couples choose joint tenancy.
How does inheritance work? Even if their will says otherwise, if one of the co-owners passes away, the rest will automatically inherit 100% of the property.
Should You Get a Joint Mortgage?
A joint mortgage places you in debt for a long time, with the risk of having to pay for someone else too, or having your property repossessed.
While that doesn’t sound comforting at all, a joint mortgage can also open the door to your own home every day. And that is worth some risk.
To joint mortgage or not to joint mortgage? Here’s a list of pros and cons to consider.
- Bigger loan size: Combining income can help you get a higher loan.
- Higher deposit: Combining savings can mean a higher deposit, which can incentivize lenders to accept your mortgage application in case anyone has a bad credit history.
- Cheaper rates: With any mortgage, a higher deposit usually means cheaper rates, as it’s safer for the lender.
- Becoming a homeowner: With the help of a partner, friend, or parent, you can finally invest in your own property, which is pretty refreshing if you’ve been renting until now.
- Needing another person’s approval for everything: Especially in the case of joint tenancy, you’ll need to agree on all decisions with the other co-owner. This could cause friction or disputes.
- Potentially having to pay someone else’s share: If a co-owner doesn’t pay their share of monthly repayments, you could be responsible for stepping in.
- Being financially linked: If a co-owner is late with their monthly payments, this could show up on your credit score as you’re financially linked. Likewise, any financial issues they might show up on your credit report.
- First-time buyer incentive: If you're planning to help a family member through a joint mortgage and you don’t have a home of your own, you could spend your first-time buyer incentive on this purchase. In this case, you’ll have to pay stamp duties when you buy a property for yourself one day.
How Can a Joint Mortgage Affect My Credit Score?
Based on the information in your credit reports, a credit score predicts how likely you are to repay your loans on time. When it comes to joint mortgages, credit scores matter for two reasons:
First, each of the applicants’ credit history affects how likely you are to qualify for a joint mortgage.
Second, when you take out a joint mortgage with someone, you become financially linked to the person(s). This means everyone’s credit behaviour affects everyone else’s credit score.
Applying for a joint mortgage: Your income isn’t the only factor lenders consider when applying for joint mortgage. A lender also look at the credit history of each of the potential co-owners. If any one of you has a poor credit score, this could affect the whole application, even if others have great credit scores.
Becoming financially linked: Taking out a joint mortgage implies creating a financial association between all borrowers. This means one borrower’s missed or late monthly payments or any other financial issues could affect the credit score of all other borrowers.
This could impact your ability to take out loans in the future, even if you’re doing so alone.
Moreover, people become financially linked whenever they apply for any kind of loan or credit together. Even a joint bank account can make two people financially linked.
Can You Get a Joint Mortgage?
The criteria for getting a joint mortgage varies from lender to lender. However, there are some general requirements all lenders pay attention to. Here are some things to consider:
Deposit
While it’s possible (although more difficult) to find a lender with a 5% deposit only, the usual deposit lenders require is a 10% minimum. The thumb rule is that a higher deposit usually results in fetching a better deal.
To get there, you can combine your savings. And don’t worry, the borrowers can give unequal amounts to build the deposit, and the savings don’t need to come from a joint bank account. Finally, you need to prove the source of your deposit to the lender.
Credit Record and Expenses
Essentially, lenders want to know if you’re able to keep up with repayments. Therefore, they’ll check your finances to confirm this, including your expenses and credit records.
Prepare information on general expenses such as:
Childcare, entertainment, any other costs
Council Tax
Insurance policies
Furthermore, mortgage providers assess the credit record of all applicants and take into account any issues, how serious they were, and how long ago they happened. Last but not least, a higher credit score usually means access to better deals.
So let’s take a look at what’s considered good using Experian Credit Score.
961 - 999:Excellent | 881- 960:Good | 721 - 880:Fair | 561 - 720:Poor | 0 - 560:Very Poor | |
|---|---|---|---|---|---|
What’s usually available to you | Best mortgage deals, lower interest rates | Most of the best mortgage deals | Decent mortgage deals, fair interest rates | Poor access to deals, higher interest rates | Very hard to qualify for a mortgage, very high interest rates |
Property Type
When approving joint mortgages, mortgage providers also look at the resale value of a property. Hopefully, there will never be a need for this — but if they need to repossess your home and sell it, they want to be sure that they’ll be able to get their investment back.
However, anything non-standard about your dream home might be considered a risk. This includes:
Non-standard construction frames (timber, steel)
Prefab non-standard structures (concrete, modular)
Non-standard construction roofing (flat roofs, shingle roofing, thatched roofs)
Non-standard construction materials (clay lump, cob)
This is why some lenders tend to refuse mortgages on non-standard construction property types. In case your dream property is slightly unusual, your best shot is to find a specialist mortgage provider.
Get a Joint Mortgage in Three Steps
Step 1: Check Your Credit Score
Step 2: Decide on the Ownership Model
Step 3: Talk to a Specialist Broker
Selling or Moving On
It’s not the happiest topic, but what happens when people who have a joint mortgage together decide to part ways? Here are some common options:
1. Selling the Property
One way to handle the joint mortgage is to sell the property and share the equity, that is, the proceeds from the fully paid-off part of the property (the rest is the bank’s).
Co-owners can share the money depending on the ownership model they chose: equally for joint tenants or proportionately for tenants in common.
2. Buying a Co-Owner Out
Buying out a co-owner includes taking over their share in the mortgage and buying their property share at the same time.
It also includes removing their name from the title deed and the mortgage. For this to happen, you can either remortgage or change to a new deal with your lender. Usually, people need to borrow more money to buy the other person’s share of the property.
3. Continue With Joint Ownership
This works in cases where people remain on good terms and is one of the simplest solutions: you keep paying the mortgage until you pay off the debt. Once the property completely belongs to you and the other person, you can sell it and split the proceeds.
4. Mesher and Martin Orders
In case of a divorce, a Mesher or a Martin court-issued order can help you resolve family home disputes.
Mesher order: A Mesher order includes postponing the sale for a set time, usually because of children living on the property. Both people remain owners until a predetermined trigger event happens, such as the child finishing university. After that, the property can be sold and the former partners can split the equity.
Martin order: A Martin order allows one partner to live on the property for the rest of their life. Until they die, choose to move out, or remarry, the property cannot be sold.
Alternatives to Joint Mortgages
In some cases, a joint mortgage isn’t the best solution. The following financial products can help you achieve your goals in a different way.
Guarantor Mortgage
A guarantor mortgage uses someone else’s home or a special savings account as security. In case neither the borrower nor the guarantor manages to repay the mortgage, the lender can sell the guarantor’s home or take their savings to take back the money.
A guarantor mortgage is useful in the following cases:
You’re having issues saving enough for a deposit
You have no credit history, or very little
Your credit score is poor
Joint-Borrower, Sole-Proprietor Mortgage
A JBSP mortgage is useful for people who are buying a home for the first time with the help of someone else, usually a parent. It’s different from a joint mortgage as one borrower is legally required to help pay the mortgage, but they don’t have any property rights. In a nutshell, a JBSP mortgage is best in the following case:
You want to help your child to buy their first property.
You can buy a second property without paying the 3% stamp duty charge
Student Mortgage
Buy-for-uni mortgages allow the student to borrow 100% of the property price and rent out parts of the property to help repay the mortgage. In this case, the borrower also has to live in the home. To secure the investment, the lender will usually require a parent or another family member to act as a joint borrower or guarantor.
Created for students who want to purchase their first property with the help of a joint borrower or guarantor
