Joint mortgages
There are a range of benefits that can come with applying for a joint mortgage. One of the main benefits of a joint mortgage is that they can be a great way to borrow more, compared to if you was borrowing by yourself.
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- What is a joint mortgage?
- How do joint mortgages work?
- Joint tenancy or tenants in common?
- How much can you borrow with a joint mortgage?
- How to get a joint mortgage
- Can a joint mortgage be transferred to one person?
- What legal considerations are there?
- Joint borrower, sole proprietor mortgages
- Frequently asked questions
What is a joint ownership mortgage?
This type of mortgage allows two or more individuals to obtain a mortgage together. You can obtain a joint mortgage with family members or even a friend. The majority of joint mortgages are between two people. However, it’s possible for them to be split across three people.
In some cases, lenders may allow four individuals to apply together. Some lenders we have worked with that allow this include Metro, Halifax, Barclays, Coventry Building Society, and Virgin Money.
Joint mortgages allow individuals to borrow more because lenders will consider both the income and deposits of all applicants.
How do joint mortgages work?
Joint mortgages work in a similar way to how a regular residential mortgage would for someone applying on their own. You will provide a deposit and then pay the remaining amount over the term of your mortgage.
A deposit can come from each borrower or just one. Lenders don’t impose any requirements for who provides the deposit, although the more deposit you can provide, the better your chances of borrowing more.
Each individual has equal responsibility for making mortgage payments, no matter if there are two or four individuals or if one party contributes more than the others. Therefore, choose who you borrow with wisely, because if someone can’t pay, you will still need to make the full payment.
Once the mortgage has been paid off, all borrowers will then own the property.
Joint mortgages are commonly taken out between the following people:
- Partners in relationships.
- Close friends or family – this can even be if they wish to help you purchase a home but not live with you.
- Business partners who are looking to invest in a property.
If you’re looking to get a joint mortgage with someone, why not reach out today to discuss your options over a free initial consultation.
Joint tenancy or tenants in common?
When going through the joint mortgage application process, a lender needs to know if you’re applying as joint tenants or tenants in common. This plays a big part in the ownership structure of your property, so it’s key you’re aware of this before you apply.
A joint tenancy agreement is where both individuals have equal rights to the property; essentially, ownership is split 50/50. Even if one borrower contributes more, the property will be split completely equally. This also means that if the property is sold, the capital raised will be split equally.
Furthermore, if one property owner was to die, full ownership will then be transferred to the other individual, regardless of any will. This concept is known as right of survivorship in the legal world.
This style of ownership is commonly adopted by married couples or those in long-term relationships. However, if one party stops paying it can bring disagreements, especially with people in non-romantic relationships. Mediation or seeking legal advice can be suitable methods of fixing disagreements.
‘Tenants in common’ is where both individuals own unequal amounts of the property. The amount each party owns will be decided and put together by your solicitor in what’s called a ‘deed of trust’.
This could reflect the contribution each party is willing to make. For example, one individual may put down the majority of the deposit as well as pay the majority of the monthly payments. Therefore, both parties may agree on a 70/30% split.
If one individual wants to move out, they can sell their share without the permission of the other co-owner(s). They may also choose who they sell it to and it doesn’t necessarily need to be another owner of the property. If a co-owner doesn’t agree to the sale, they can apply for an ‘order of sale’ through the courts. If granted, this forces the sale of the entire property.
Furthermore, if one owner was to die, their share will be passed on to the beneficiary named in their will.
Deciding on the right ownership structure can be difficult as there are a variety of factors to consider before applying. If you want tailored advice on what is best for you, why not get in touch today?
Our expert team of advisors understand all the implications of the different ownership types, so they can give informed advice over a free initial no-obligation consultation.
How much can you borrow with a joint mortgage?
Typically, joint mortgages mean you will have a larger deposit as well as there being more income for a lender to assess. This is due to there being multiple individuals applying for the loan.
Therefore, you can typically borrow more than you would be able to on your own. The majority of lenders will look at the two individuals with the highest incomes when assessing how much you could borrow. To give a rough guide, you typically borrow around 4.5 to 5 times the annual combined income of the individuals.
However, certain factors can affect this number. For example, a bad credit history or small deposit could lead to you being able to borrow less. A lender will assess the risk associated to lending to you – the higher the risk, the less you can borrow.
Therefore, before applying for a mortgage, looking to improve your credit score can allow you to borrow more. As well as this, saving for a larger deposit can also lead to increased borrowing.
If you want to get an understanding of what you could borrow on a joint mortgage, why not try our mortgage affordability calculator.
How to get a joint mortgage
The process of getting a joint mortgage is very similar to if you were to apply by yourself. The main difference is that there are multiple parties that will be assessed by a lender, and all parties will need to agree on all terms together.
You will need to agree on things like the legal ownership style of the property – will it be tenants in common or joint tenancy? If you choose tenants in common you will need to decide with your solicitor on how the property will be split.
Once this has been decided, all parties will need to sign the relevant documentation provided by your chosen lender.
Like the above, the documents required are identical to if you were applying on your own. However, there will be documents for every person instead of just one.
When applying you will need the following for each applicant:
- Identification – the most common form of ID are passports or driving licences. Remember, make sure they aren’t expired, or a lender may not accept them.
- Proof of address – this can be bills or bank statements dated within the past 3 months.
- Proof of income – this is typically payslips, but it can be shown through bank statements too.
- 3 to 6 months’ worth of bank statements – this can be used as proof of deposit. It also allows lenders to assess your finances and see expenses and spending habits.
Can a joint mortgage be transferred to one person?
Yes, although it’s not always a straightforward process. There are requirements that must be met before you can go ahead:
- Everyone named on the mortgage must agree to the transfer, as your lender will require all parties to consent.
- Your lender will also need to agree to the transfer. They will carry out an affordability assessment to ensure the person taking on the mortgage can afford the payments. If they have doubts that the individual may be unable to make payments, it’s likely they will decline your request.
- If both requirements are satisfied, the ownership will then be transferred – this process is known as ‘transfer of equity’. This means that everyone except the one individual will have their ties cut with the property and leave the joint mortgage.
What legal considerations are there?
Due to multiple parties being involved with these type of mortgages, some legal considerations must be kept in mind before applying.
Consulting legal advice from a solicitor before entering into a joint mortgage is crucial. A solicitor can help ensure that all parties understand their rights and obligations, and that the arrangements are fair and equitable. At The Mortgage Centres we work closely with specialist solicitors who are able to work with us throughout the mortgage process.
A Declaration of Trust is a crucial document when entering a joint mortgage, especially if the property is owned as tenants in common. It outlines the ownership split between the parties, meaning each person owns a specific share of the property.
This document also clarifies the intentions of the parties regarding the property, such as whether they intend to share the property equally or if one person has a larger share.
A Mortgage Deed is the legal contract between the borrower and the lender. It outlines the terms of the mortgage, including the interest rate, repayment schedule, and any conditions or restrictions.
An early repayment charge (ERC) is a fee imposed by a lender if the mortgage is paid off before the agreed-upon term date is supposed to end. These charges can vary depending on the lender and the type of mortgage.
In a joint mortgage, if one borrower decides to repay the mortgage early, the early repayment charges may be shared between all borrowers. So, ensure you’re aware of how you ERC is structured before going ahead with a mortgage product.
If you default on mortgage payments, the lender may initiate repossession proceedings. This involves a legal process to recover the property and sell it to repay the outstanding debt.
In a joint mortgage, all borrowers are at risk of losing their share of the property, even if only one borrower has defaulted. This will also affect all parties’ credit scores, as all parties are equally responsible for making payments.
Joint borrower, sole proprietor mortgages
A joint borrower, sole proprietor (JBSP) mortgage is where not all of the people listed on the mortgage are the property’s legal owners. This is frequently done where parents or guardians will be named on their child’s mortgage, even though they will not own the home.
This allows for better affordability when applying for a mortgage, allowing the individual to borrow more. However, if you fail to make payments, the other people listed on the mortgage will be required to cover them.
Frequently asked questions
Many lenders will set a maximum age limit of 70 years old for a standard joint mortgage. However, this can sometimes be extended to 80 for normal or Buy to Let joint mortgages.
Lenders like NatWest directly state that they offer mortgages to people with a maximum age of 70 at the end of the term, with this increased to 80 for Buy to Let mortgages.
Yes, adding someone to your mortgage is possible. To do so a lender will need to carry out an assessment of the person you intend to add. This assessment will include credit and income checks. If a lender deems someone as too risky, it’s possible they may decline your request to add someone.
Another option is to remortgage to a new lender and add both of your names on the new mortgage.
If you wish to add someone to your mortgage term, why not reach out today? You can organise a free initial consultation, where one of our advisors can discuss your situation.
Yes, although a lender will require you to prove that the individual paying can afford the monthly repayments. In this case, a lender will take a close look at your finances and ensure it’s not a risk to lend to you.
When initially applying for a joint mortgage, both applicants will have a hard credit check done on their files. This hard check will show up on your report, therefore if you have too many on your report it can negatively impact your score, making it more difficult for you to obtain credit in the future.
Another thing to keep in mind is that with a joint mortgage you are both equally responsible for the monthly payments, so if you miss a payment it will affect both people’s credit.
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
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