There’s strength in numbers, especially when it comes to your mortgage prospects. One person doesn’t have to bear the weight on their own – it’s possible for two, three or four homeowners to join forces and combine their buying power for a mortgage that suits everyone.
It’s called a joint mortgage, and it can be a great way to get on that first rung of the property ladder. Keep reading to discover how you can buddy up for better finances.
What is a joint mortgage?
In the simplest terms, a joint mortgage means you share the deed to a property with someone else. This can be a single person, or up to three others. There’s no limit to who that may be: parents, friends and partners all count. You will be living together for the duration of the mortgage, which works out – usually – at around 25-30 years.
A lender will assess you together for affordability. Since everyone can pool their earnings for a higher deposit, and thus a better home and interest rate, this is how some people choose to finance their very first home.
A joint mortgage falls into one of two categories:
Joint tenants: Mortgage repayments are shared equally amongst all parties. In the eyes of the law, the group is a single entity. Should one of you leave (either for personal or financial reasons), then your portion is absorbed by whoever else is on the contract. Either party can leave at any time, independently, although you must decide collectively when to remortgage.
Tenants in common: Ownership is divided up into any proportions you like. One owner may have 20%, for instance; another could be liable for 45%, and 35% for a third applicant. The shares can be sold separately if one owner fancies upping their percentage or abandoning the deal entirely. All parties can leave their stake in the mortgage to someone in their last will and testament, instead of a co-sharer in the deal.
Joint tenancy is the typical route for a married couple on an equal wage, or any mates that want to split their commitment 50/50. But if you’re a tenant in common, there’s more freedom for a pair, trio or group of four who earn different sums of money.
It all depends on what you value – the security of halved payments, or the year-to-year convenience of buying each other’s shares, which is helpful when you don’t know how your earnings or circumstances may change.
Legal ramifications of a joint mortgage
As you might expect, a handshake isn’t good enough. However much trust you and the other buyers place in each other, that bond may erode.
Couples break up. Friends move on. One of you could easily decide they’ve had enough of living under the same roof and seek to escape the mortgage forever.
So how do you cover yourself? Well, the lenders are already a step ahead, since they won’t say ‘yes’ to an application unless you’ve signed a legal document.
This states who is liable for what as a tenant in common, where the share is passed to in the event of a death (grim, but we have to acknowledge it), and whether you are business partners.
Equal co-owners, meanwhile, have less to worry about. You still need to legally declare your status, but the proceeds from a sale are halved automatically, unless one of you disputes it in court further down the line.
What it boils down to, in either case, is a Declaration of Trust – the name for everything we’ve just described. This can be a simple document that just states who pays what percentage of the mortgage. Or instead, it can list factors such as who ultimately decides on a sale, who’s allowed to live in the property, and which owners cover lending fees.
What do lenders look for?
Mortgage providers have to lend responsibly, which is why they’re really thorough with your application.
They’ll look at:
Your credit scores: Bad credit derail your mortgage application. If a single party looks like they’ve regularly failed to meet their commitments, the rest of the applicants will have to make up the sum. All of you will need to have solid credit ratings.
Your insurance plans: For a small fee each month, an insurer will meet the cost if any of you fall behind on your repayments.
Your income as individuals: The lender will want assurances that if something happens to separate joint owners of a property, those who remain can still afford the repayments.
At Mojo Mortgages, we can help you get a joint mortgage deal to suit everyone involved. Click here to get started.