What is a Joint Mortgage?
Joint mortgages are often taken out with a partner, but can also be taken out with friends and family. A parent may take out a joint mortgage with their child to help them on to the property ladder and improve their chances of being approved for a mortgage.
A joint mortgage provides a way of borrowing funds jointly with your partner, friends or family to buy a property. But having a joint mortgage doesn’t mean you have to be living with the other party or parties sharing the mortgage.
It can be a good option for a number of different types of buyers, including first-time buyers, who can benefit by getting a joint mortgage with their parents when buying their first property. A joint mortgage is also a popular choice for couples, whether they are married, in a civil partnership or not. By choosing the appropriate legal arrangement, they can seek to protect the contribution they make towards buying a house or flat by agreeing to own specific shares of the equity in the property.
One of the advantages of a joint mortgage is that you will combine your financial might with the other applicants, which could help you access a larger mortgage amount. Pooling your financial resources and raising a larger deposit might also allow you to access a mortgage at a lower loan to value where interest rates may be more favourable.
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How does a joint mortgage work?
Joint mortgages are usually taken out by two people, but sometimes by up to four. Regardless of the numbers involved, each person on a joint mortgage bears equal responsibility for meeting the monthly payments, which must be made. This is the case even if you decide that one or some of you will pay more than others. So if you are a couple where the joint mortgage is paid by your partner who then fails to make the payment, a lender will still expect you to make the full repayment.
Because of this, you need to be sure that you trust the other members of your joint mortgage. If no payment is made, each of you could see a negative mark on your credit profile.
Different types of joint mortgage
When entering into a joint mortgage with others, you need to decide the legal basis on which you will each own the home. This is important to establish what would happen to the property if someone who is part of the joint partnership dies or your relationship comes to an end.
When it comes to how ownership of the property is split there are two choices.
1. Joint tenants
As a joint tenant, you will have equal property rights to the other tenant(s). All tenants will get an equal share of the proceeds of the property sale if you put it on the market. The full property rights are passed on to the remaining joint tenant in the case of death.
Joint tenancy is usually preferred by couples because they will then own the property equally.
2. Tenants in common
Where tenants in common differ from joint tenants is that the share of the property owned by each member can be divided in a number of ways.
So if you are buying as a couple or larger group, it can be used to protect the amount each individual brings into the purchase and ensure that you would receive a proportionate amount back should you go your separate ways.
If you are tenants in common, you can sell your share in the property when you like, allowing the other shareholders to retain their ownership of the property, while you move on to a new property, either by taking out a new mortgage or renting.
Your share can also be protected in terms of inheritance, and this can be left to whoever you wish – it doesn’t need to be the other tenants.
You will be bound by a Deed of Trust, also known as a Declaration of Trust, which is a legal document drawn up by a solicitor for tenants in common, including those who have bought the property through a joint mortgage.
Can I get a joint mortgage?
Anyone who would be accepted for a traditional mortgage will also be eligible for a joint mortgage. As with any other type of mortgage, your affordability is based on your financial circumstances, including your credit score, which demonstrates your creditworthiness – how much of a risk you present to lenders – as well as your monthly household income and outgoings.
When applying for a joint mortgage, each applicant will have their credit score assessed, so if one of the applicants has a poor credit score your chances of securing a joint mortgage could be reduced.
Does a joint mortgage affect your credit score?
Taking out a joint mortgage can have an impact on your credit score.
In the first instance, if you apply for a joint mortgage with someone who has bad credit it may reduce your chances of approval. Or if they develop bad credit during the mortgage, the lender may think you pose more of a risk than you do in reality.
Moreover, missed or late payments during your mortgage term will show up on your credit score. Even if you weren’t responsible for the missed payment, it still will be counted against you by lenders in future credit applications.
As your credit score is one of the key factors looked at by lenders, you and the other applicants for your joint mortgage should make sure you all have credit that is as healthy as it can be before applying.
Getting a joint mortgage with parents
A parent-child joint mortgage is one option that might be available to parents who want to help their offspring buy their first home. If you are a first-time buyer, adding your parent’s income into the equation alongside your own could mean you’ll qualify for a bigger mortgage and therefore be able to afford a better first home. Your chances of being accepted for a mortgage might also be improved if your parents come on board with a good credit score.
If you decide to take out a joint mortgage with a member of your family, you’ll jointly own the property with your parent(s) and have the shared responsibility to make payments. With this in mind, you should only go down this route if all parties can comfortably afford the payments.
If you’re a parent and still paying your own mortgage, you’ll need to be certain you can comfortably make the contributions on both mortgages you would be committed to, and this will also be assessed by the mortgage lender considering the new joint mortgage.
Also bear in mind that if you are getting a joint mortgage with your parents who already own a home in England and Northern Ireland, it will mean you will miss out on first-time buyer stamp duty relief, where no stamp duty is due for the first £425,000 of the purchase price. Instead, a second-property stamp duty surcharge will need to be paid.
There will also be capital gains tax to pay when you sell up as the property won’t be considered your parents’ main residence.
Other options that could be explored if parents are homeowners and want to help their children buy their first home include joint borrower sole proprietor mortgages, gifted deposits and being a guarantor for a 100% mortgage.
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How to get out of a joint mortgage
Whether you have bought a property with friends and now want a place of your own, or you’re in a relationship that has come to an end, it’s important to know your options should you no longer want a joint mortgage.
Generally, you have the choice between selling your home and splitting the money you make, either equally or in accordance with a Tenants in Common agreement, or seeing if one of you can and wants to buy out the others.
No matter what your circumstances, all parties remain jointly and equally responsible for meeting the necessary mortgage repayments until such a time that the joint mortgage has been split.
Can a joint mortgage be transferred to one person?
Transferring a joint mortgage to one person is an option if that person wants to take on sole ownership of the home and all parties to the mortgage agree.
Similar to taking on a single person mortgage, your lender will need you to prove that you can afford to meet the mortgage payments by yourself.
If you can’t, a guarantor mortgage might be an option worth exploring. If not, then selling the property and finding something better suited to your finances may be your only option.
Tim draws on 20 years’ experience at Moneyfacts, Virgin Money and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more