There can be many advantages to purchasing a property jointly with somebody else. For example, by pooling your resources together, you might be able to provide a larger initial cash deposit. This would reduce your loan to value (LTV) and therefore getting access to lower interest rate mortgage deals.
Combining incomes could also help you get a larger mortgage offer, allowing you to purchase a more desirable property. And of course, having more than one household income should make owning a home more affordable. It means you can share the cost of mortgage repayments and household bills, etc.
To achieve these benefits, you would need to take out a joint mortgage. You may choose to purchase a property jointly with your partner, a friend, a group of friends, a business partner, your parents or a family member. Perhaps you yourself are a parent looking to take out a joint mortgage with your adult child to help them get onto the property ladder.
There may be many motivations for taking out a joint mortgage. In this article, we’re going to explain how a joint mortgage works.
What is a joint mortgage?
A joint mortgage is simply a mortgage that allows you to borrow money jointly with another person. You can then purchase a property that you will own jointly. With joint mortgages, all applicants must be over 18. They will be joint owners with a legal claim to the ownership of the property. They will all be liable for the entire mortgage and its repayments. This means that if one person is unable or unwilling to pay their share of the mortgage repayments, then it falls to the other person (or people) to pay the full amount due.
Joint mortgages can be very attractive, however, because they allow you to combine your savings with another person. You may then be able to put down a larger mortgage deposit than you would have been able to do alone. This could give you access to better mortgage deals, given the lower LTV represented. It should also mean that all of the costs involved with purchasing and maintaining a home can be split between those on the joint mortgage, as opposed to falling to just one person.
Who can take out a joint mortgage?
Most commonly, joint mortgages are taken out by just two people. This is usually couples in a relationship. You don’t need to be a married couple to take out a mortgage and in fact, cohabiting couples are the fastest growing family type in the UK.
Unmarried couples have a few different options when it comes to taking out a joint mortgage. They can opt to be joint tenants. This means that both parties have equal ownership of the property. If one person were to die, the joint tenant and partner will automatically inherit the other’s share of the property.
Another option is to be tenants in common. Again, this is designed for unmarried couples, but who perhaps have different earnings and would like to contribute different amounts to the mortgage. It protects the difference in contributions should the relationship break down. It also means that in the event of one partner dying, the surviving partner would not automatically inherit the other partner’s share of the property.
It’s not just couples that joint mortgages appeal to. Depending on the lender, you can take out a joint mortgage with up to three other people. The maximum number of people who can be on a joint mortgage is normally four. This can make it an attractive option for groups of friends living in an area where property prices are higher, such as London, who want to combine their resources to purchase a property together. It might also appeal to business partners who want to invest together in a buy-to-let property. However, this is something of a specialist area and subject to other rules and opportunities.
Perhaps two parents want to help their adult offspring take their first step onto the property ladder. They may take out a joint mortgage in all three names. Parents should be aware that if they already own a property, they may have to pay an additional 3% Stamp Duty Land Tax charge when purchasing a second property. There may also be capital gains tax to pay on their share of the property if and when it gets sold in the future.
If this is a concern, parents may decide to act as mortgage guarantors instead of taking out a joint mortgage. This way they can still provide security for their child without having to be named on the mortgage or title deeds. They would also, therefore, avoid some of the tax implications.
Find out more – ‘What is a mortgage guarantor?’
How much can you borrow with a joint mortgage?
Generally speaking, you can borrow more when you buy with someone else. A lender will take into account your combined income when assessing your mortgage affordability. When a lender assesses affordability, they normally multiply the applicant’s income by a set amount (usually around four times). This will determine how much they are willing to lend.
Clearly, joint incomes will be greater than a single applicant’s income. This will generate a higher mortgage offer. At the same time, having two incomes supporting a mortgage application will provide greater comfort to a lender. If one person lost their income, there will still be another person to provide financial support.
Let’s say you earn £25,000 a year. The person you are taking out a joint mortgage with earns £30,000 a year. This puts your combined income at £55,000. If a lender is offering a mortgage up to four times your combined income, this would mean you could be able to borrow up to £220,000.
Determining affordability is not quite as cut and dry as that, however. A lender will also want to take a close look at your incomes. They will also look at your individual credit records, any debts outstanding, your personal incomings and outgoings and any other liabilities or financial responsibilities you may have. If you would like to find out how much you could potentially borrow on a joint mortgage, speak to us here at Mortgage Light.
Can I get a joint mortgage with bad credit?
This will depend on the level of any bad credit you have. It will also depend on the criteria of the lender you approach. Of course, when you apply for a joint mortgage, a lender will run the usual credit checks and take the combined credit histories into account. If one of you has a particularly good credit score, this can benefit the overall application. Similarly, an applicant with a poor credit score could bring down a joint application.
If you have a particularly low credit score, it may work to your advantage to apply for a mortgage jointly with someone who has a good score. Your combined score may be strong enough for you to get mortgage deals that would otherwise have been denied to you if it was your name alone on the application. Of course, your poor score will negatively impact your joint applicant. However, as long as your combined score is sufficient to be accepted, then having your joint incomes and therefore access to possibly higher borrowing may offset this.
If you are worried about getting a joint mortgage when you have bad credit or with a joint applicant who has bad credit, then we recommend you speak to a mortgage advisor and broker for guidance. At Mortgage Light, we know how best to structure applications. We know exactly which lenders to turn to when working with people who have a less than perfect credit score.
Find out more – ‘How does bad credit affect a mortgage?’
How to get out of a joint mortgage
The problem with joint mortgages is that you may come to a point where one person would like to be removed from the mortgage. Perhaps you took out a joint mortgage with a partner and you’ve decided to separate or divorce. Perhaps you took out a joint mortgage with a friend. They’ve now decided they’d like to move away or get a joint mortgage with their partner instead. These situations can be challenging, but there are a few different options available to you.
You could sell the property, all move out, pay off the mortgage and split any net sale proceeds between you. Alternatively, one person could seek to buy the other out by taking out a new mortgage in their sole name (or jointly with a new partner). They would then fully refinance the existing mortgage and pay off the leaving partner with their share of the property’s equity. It’s worth mentioning that all owners must agree to whatever course of action is taken. All joint owners have a legal right to remain in the property unless a court order rules otherwise.
Unfortunately, joint mortgage separation can be complicated. It’s never quite as easy as simply taking a name off the mortgage. Always seek professional advice before settling on a route to go down. It’s important to ensure that the process is handled correctly.
A huge proportion of homeowners take out joint mortgages. It is often the most practical route to buying a property. If you are interested in getting a joint mortgage, let us at Mortgage Light advise you and help secure the perfect mortgage deal. We have access to the whole mortgage market and are confident we can find you exactly what you need.
Simply call 01908 597655 or contact us via our website to speak to one of our friendly advisors.