By taking a mortgage out with someone else you can combine your incomes to potentially borrow more than you could on your own, making that step onto the property ladder a bit more manageable.
You could take out a joint mortgage with your partner, a family member, or perhaps a close friend.
You’ll want to think carefully about who you buy with as both your financial futures will be intertwined.
In this article we will explain how joint mortgages work, the options for property ownership and how to get the best deal.
What is a joint mortgage?
A joint mortgage is an agreement where two or more people take out a mortgage together. (the maximum is usually four people).
It means that you, alongside your partner, friend, or family member, share the responsibility of the mortgage repayments and the ownership of the property.
Lenders assess your affordability together, potentially allowing you to borrow more than you could individually.
All borrowers are equally responsible for the entire mortgage debt. If one person can’t make payments, the others must cover the full amount.
A joint mortgage can be used when you buy a property, or when you finance a property you already own, this is a remortgage.
Types of joint mortgage
Owning a mortgaged property with someone else involves making a few decisions. It’s a good idea to take some legal advice about what would suit you best.
Standard joint mortgage
You and the other borrowers are named jointly on the mortgage and all share the responsibility of making the monthly payments. All borrowers are named as owners of the property.
Who can apply for a joint mortgage?
Joint mortgages are a popular option for couples, whether married, unmarried, or in a civil partnership.
However, you don’t necessarily need a romantic partner to buy a home.
There are no restrictions on who you can get a mortgage with, other than their suitability for a specific mortgage.
Partner
Unsurprisingly, this is the most popular choice.
Having a joint mortgage with your co-habiting partner is very common, whether you are married or not. For the majority of these situations all of the borrowers will also be owners of the property.
Although the percentage owned may not always be equal.
Friend
Getting on the property ladder is hard. If you don’t have a partner to buy with then lots of people buy a home with their friend/s. It’s a great option for first time buyers.
It’s normal for all of the borrowers to be named as owners, but not necessarily all equal.
Parents
Having one or both of your parents on the same mortgage is becoming increasingly popular.
They can be used to boost your borrowing power, so you qualify to borrow a higher amount than you could get by yourself. The mortgages can be set up as: Guarantor or Joint Borrower Sole Proprietor (JBSP).
This means that they can be part of the mortgage but won’t own any of the property.
Relatives
In the same way that friends can buy together, you may prefer to do this with a close relative.
A lot of buy to let properties are purchased this way, so you are joint borrowers and investors.
There are quite a few different ways of buying and financing a property with someone else, so it’s important to take some professional advice beforehand.
You will need to establish who will be on the mortgage and on what basis. Also, who will be a property owner and at what percentage.
Ownership options
Owning a property with another person doesn’t have to be 50/50.
The choices you make will be influenced by who you are buying with and the financial input each has made. Ask your solicitor for further advice.
Joint Tenancy
Imagine you and someone else (like a partner, family member, or friend) own a property together as joint tenants.
Here’s what that means:
- Equal Ownership: Legally, you both own the entire property, not just half. There are no separate shares.
- Right of Survivorship: If one of you passes away, the other person automatically becomes the sole owner of the property. It doesn’t go through a will or inheritance process.
- Can’t Sell Your Share Alone: You can’t decide to sell just your portion of the property. To sell, both owners have to agree.
Example: You and your partner buy a house as joint tenants. Sadly, your partner passes away. You automatically become the full owner of the house without any complicated legal processes.
Tenants in Common
Here’s how tenants in common is different from joint tenancy:
- Specific Shares: You each own a defined portion of the property, like 50/50, or maybe 70/30 if one person contributed more to the purchase.
- Freedom to Pass on Your Share: If you pass away, your share of the property doesn’t automatically go to the other owner. It follows your will or inheritance rules.
- Can Sell Your Share: You can choose to sell your share of the property without needing the other owner’s permission.
Example: You and your sibling buy a house as tenants in common, each owning 50%. If you pass away, your 50% share of the house goes to whoever you decide in your will – it could be your children, another family member, or someone else entirely.
How much can you borrow?
There’s no single answer to how much you can borrow on a joint mortgage because it depends on several factors.
Combined Income: Lenders will look at the total income of everyone applying for the mortgage. They typically allow you to borrow somewhere between 4 to 5 times your combined annual salary.
Credit Scores: Both your credit histories will be considered. If one person has a lower credit score, that could limit how much you both can borrow.
Deposit: A larger deposit means a smaller mortgage, making you more attractive to lenders. The minimum deposit will be 5-10%.
Outgoings: Lenders assess your regular expenses and debt payments (credit cards, loans, etc.). Lower outgoings will increase your affordability and borrowing capacity.
Use our calculator to see the effect of having a second income
Your credit history
When you open a joint financial account (like a joint mortgage, bank account, or credit card), a ‘link’ is created on both individuals’ credit files. This is called a “financial association.”
When you apply for credit individually in the future, lenders will see these financial associations on your credit report. They might take your partner’s credit history into account when assessing your application.
If your partner has a good credit score and responsibly manages payments, this association can positively impact your application.
However, if your partner has a poor credit history or misses payments on the joint account, this could negatively affect your application, even if you have excellent financial habits.
How to get out of a joint mortgage
Whether it’s because of a relationship breakdown, or one of the owners simply moving on, there are going to be times when the financial relationship needs to change.
Now you can’t just walk away from a mortgage. All of the borrowers are jointly liable for the repayments and any changes have to be approved by the lender.
Generally the choice is between selling the property, or one person buying the other out.
Selling the property is relatively straightforward and you would split the proceeds between owners. Remember that the mortgage payments must be maintained while the sale is going through.
Buying someone out of a mortgage is very common, and one way would be to use a transfer of equity remortgage. This can give you the opportunity to borrow a bit more to pay off the other person.
How a broker can help
A mortgage broker can help you to get into a joint mortgage, or help you get out of one!
Brokers have access to a wider range of mortgage products than you could find on your own, including deals exclusive to brokers.
They can assess your joint circumstances and match you with the most suitable lender and mortgage type based on your needs.
Joint mortgages can become complicated, especially with varying income levels, credit scores, or ownership structures and a mortgage adviser will be very experienced in dealing with these complexities.
Understanding Equity Release & Joint Ownership
Equity release plans allow homeowners aged 55 and over to access the equity value in their home. How does this work if you own your home with your spouse or partner?
Read on as we explain what’s possible, how it works and why getting professional advice is essential.
