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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.
So, if your co-applicant is considered a risky prospect, it could harm your chances of having a mortgage approved.
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.
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.
This is the case with all joint financial products and will remain so until the debt is fully repaid.
There are two types of joint mortgage. These are:
Our guide on helping your child buy a property will help you work out if this is the best way to assist them.
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.
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 earlier with a joint mortgage, there could be a lot of additional costs that either you or your parents will face.
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. 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. 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.)
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.
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 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:
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.
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