There are plenty of advantages to securing a joint mortgage, but it’s important to be aware of the terms involved.
Your co-applicant(s) will have a huge impact on whether you’re approved for a mortgage, as well as the result of other financial applications you make in the future.
You’ll be equally responsible for repaying the mortgage debt, even if only one person stops making repayments. You’ll also need to agree when you want to sell the property.
Who are joint mortgages for?
You can get a joint mortgage with up to three other people and there are no limits as to who these people are. However, when you apply for a joint mortgage, all applicants are considered jointly. So, if your co-applicant is considered a risky prospect, it could harm your chances of having a mortgage approved.
How much can you borrow with a joint mortgage?
A key advantage of a joint mortgage is the extra borrowing power it provides. Lenders will consider the annual income of all applicants jointly and agree to lend a specific multiple of this figure (usually between four and five times as much). The exact multiple will depend on your choice of lender and how reliable it deems you to be. Applicants with good credit scores are often approved to borrow bigger multiples of their income.
Does a joint mortgage affect your credit score?
A joint mortgage won’t directly affect your credit score. However, you’ll be financially “linked” with the co-owner(s) of your property when making future financial applications. So, if you have a great credit score but your co-owner doesn’t, it’ll harm your chances of being approved for further loans/credit cards/second mortgages. You can check your credit score here.
This is the case with all joint financial products and will remain so until the debt is fully repaid.
Joint tenants and tenants in common
There are two types of joint mortgage. These are:
- Joint tenants. All parties jointly own 100% of the property. If one party dies, their share is automatically passed on to the co-owners. This option is usually chosen by married couples.
- Tenants in common. All parties own an individual share of the property. You can arrange for the portions to be divided unequally, if necessary. If one party dies, they can leave their share to someone else in their will. This option is usually chosen by friends or relatives who are buying together.
Can you get a joint mortgage with a family member?
Yes. Many lenders are happy to approve joint mortgages for family members. Many parents will choose to apply for a mortgage jointly with their children in order to help them onto the property ladder.
How parents can help their children buy a home with a joint mortgage
When you apply for a joint mortgage, the lender will consider both your incomes jointly. This substantially increases your borrowing power and makes it easier to take your first step on the property ladder.
Although some lenders are cagey about approving parent/child joint mortgages, there are plenty who will allow it.
Is it a good idea?
The first thing to consider is whether you can afford the mortgage repayments on your own. No matter what arrangements you agreed to with your parents regarding repayment of the mortgage, your lender will consider you jointly liable. This means if one of you decides to stop making mortgage repayments, the other can be considered fully responsible for the debt.
If you fall into arrears, a lender is within its rights to repossess your parent’s other home(s) as well as the one you’re buying together.
The pair of you will also have your credit reports “linked” until the mortgage is paid off. If one of you has a bad credit score, this could harm the other’s chances of being approved for other financial products in future.
You’ll also have to agree on when the property should be sold. If you tend to have disagreements with your parents, it might be best to avoid a joint mortgage.
Also, while it can save you a lot of money to get onto the property ladder at an earlier age with a joint mortgage, there could be a lot of additional costs that either you or your parents will face.
Tax implications
First-time buyers are entitled to a sizeable discount on stamp duty. In fact, when buying in England and Northern Ireland, you’ll pay no stamp duty on purchases below £300,000. But unless your parents are also first-time buyers, you’ll miss out on this discount when buying jointly with them. If your parents are currently homeowners, you’ll have to pay the second home surcharge of 3%. Our stamp duty guide explains how much this will cost you.
If this property purchase counts as a second home for your parents, you’ll have to pay capital gains tax when selling it at a profit. This could make it harder for you to buy your next home outright, especially if your parents want a split of the sale profits.
It’s not all bad news. If you buy the property as joint tenants, you’ll inherit your parent’s share of the property automatically – and may not have to pay inheritance tax. (But if their whole estate is worth more than the IHT threshold, you might still have an amount to pay.)
Length of the mortgage term
Most mortgage providers will only allow homeowners to borrow up to a certain age. With some lenders, this is as low as 65.
You may have to reduce your mortgage term (and therefore increase the size of your monthly payments) in order to meet your lender’s terms.
A mortgage broker will be able to point you towards the lenders willing to accept mortgage repayments from homeowners into their 70s and 80s.
Alternatives to joint mortgages with parents
- Guarantor mortgages. Instead of buying jointly with a child, parents can choose to act as a guarantor on their mortgage. By doing this, they’ll be liable for their child’s debts if they fall into arrears, but will have no legal ownership of the property. This extra layer of protection is often enough to convince lenders to loan to buyers with low income or poor credit.
- Offset mortgages. If the child chooses an offset mortgage, a parent could deposit funds into the linked offset savings account. This reduces the amount of mortgage interest the child will have to pay. If they owe £80,000 on their mortgage, but there’s £10,000 sitting in the offset account, they’ll only pay interest on the remaining £70,000. What’s more, it’s usually possible to withdraw from the account whenever you need to.
- Gifted deposit. You’ll have to sign a waiver confirming that you don’t expect your child to return the money and that you do not retain a financial interest in the property. If you die within seven years of making the gift, your child will still have to pay some inheritance tax on it.
Joint mortgages with one partner having bad credit
If a co-applicant has a bad credit score, it could harm your overall chances of getting a joint mortgage. That’s not to say it’s impossible though. Our guide on getting a mortgage with bad credit is packed with ideas on improving your chances of being approved.
Getting out of a joint mortgage
Getting out of a joint mortgage isn’t always simple.
In order to approve this, a mortgage lender will need to be convinced that the remaining owners of the property can still afford the mortgage repayments.
They’ll be put through the same financial and credit checks as would happen during a remortgage.
If the remaining owners can’t agree new mortgage terms, their options are:
- Keep the departing owner on the deeds
- Remortgage with a different lender
- Sell the home
The process can be particularly complicated when two spouses are divorcing, as their future financial situations are likely to be unclear. Often, lenders will refuse to remove a departing spouse from the property deeds until the financial settlement from the divorce is finalised.
Joint mortgages: the pros and cons
Pros
- You can get a mortgage with anyone.
- You can get one with up to three other people.
Cons
- If one of you stops making mortgage repayments, the other might be fully responsible for the debt.
- If the other person has a bad credit score, it could also affect yours.
- No stamp duty discount if you’re buying with parents unless they’re also first-time buyers.
- If you joint own with parents they’ll need to pay capital gains tax when selling.
- It’s tricky to get out of a joint mortgage.
How to get a joint mortgage: A summary checklist
1. Decide who you want to get a joint mortgage with – a parent, a partner or a friend. Remember you’ll be financially linked to that person for the duration of the mortgage.
2. Work out your joint income and how much you could potentially borrow.
3. Research mortgage lenders or consider using a broker to explore the wider market or help you find a mortgage, especially if you have complicated financial circumstances.
4. When buying a property, decide if you’re going to be joint tenants or tenants in common.
5. When it comes to selling the property, ensure you have agreement from everyone on the joint mortgage.
The bottom line
You can get a joint mortgage with another person or a relative like a parent – indeed, it may be the only way that buying your desired property is possible. But be mindful that it’s a big financial decision and your finances will be linked with the other person for the duration of the mortgage.
From February 2020 to May 2020, mortgage approval rates fell by 87%.
For more property-related statistics, download the PDF below.
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