Joint Mortgages: Can I Buy a Home with Someone Else?
With a joint mortgage, you can buy a home with one or more other people. Here we’ll look at what joint mortgages are, why you would take one out and how it works with mortgage lenders.
How do joint mortgages work?
Taking out a joint mortgage enables you to buy a home with other people. This could be the following:
- A partner
- Up to three friends or relatives you plan to live with
- Friends or family members that help you buy the property but don’t live with you
- A business partner who invests in the property with you
Joint mortgages work in exactly the same way as a regular mortgage. You will need to pay a deposit towards the home and the mortgage lender will lend the remaining amount. Together you must pay the monthly mortgage payments.
There are two main types of joint mortgages. Each are set up slightly differently and have separate legal ramifications.
Joint tenants
If you buy as joint tenants, all parties on the mortgage have equal rights over the home you own regardless of how much money each put in towards the deposit.
Couples buying together will often do so as joint tenants. If you were to sell the property, the profits would be split equally between you.
Tenants in common
Tenants in common is more common when you buy with friends and family. It means that each person owns a specific share of the property, often in line with the proportion of the deposit they put forward.
If the property was sold, the profits would be split in line with how much each party owns of the property.
What are the benefits and drawbacks of a joint mortgage?
One of the biggest benefits of a joint mortgage is that together you may be able to borrow more from a mortgage lender than you would be able to alone. This is because the mortgage lender will look at how much you can afford between you. You may also be able to save up for a bigger deposit together, and lenders may see you as more reliable if there are two people to cover the mortgage payments.
In terms of disadvantages, if one person misses their payment everyone is liable. If this results in defaulting on a mortgage payment, it can affect the credit rating of the other owners. When you’re buying as a couple and unfortunately you break up, this can result in having to sell the house (link to separation guide).
How much can you borrow with a joint mortgage?
Just as with any kind of mortgage, the amount you can borrow will depend on a range of factors. The combined deposit you have will play a part, and the lender will look at your affordability.
With a joint mortgage with two people, a couple for example, the lender will look at your combined affordability and what this means for the monthly mortgage payments. This may result in them being willing to lend more than they would to you on your own.
In the example of four people taking out a joint mortgage, most lenders will look at the highest two incomes and combine these. Their salaries and affordability will be used to determine how much they will lend to you.
Key considerations for a joint mortgage
If you’re thinking about entering into a joint mortgage, you’ll want to consider the following:
Ownership of the mortgage
Joint tenants might be more suitable if you’re buying as a couple. With friends, tenants in common would likely be the preferred option. Think about how much deposit you each put forward. If one person is putting in more but you’re buying it as joint tenants, they don’t have rights to more of the property.
The following will also have an impact:
- The credit rating of each of the applicants: If one or more people have bad credit ratings, this will negatively impact the application.
- The buying status of each of the applicants: If you’re both or all first-time buyers, you won’t have to pay Stamp Duty on properties under £425,000. If just one of the applicants has owned property before, Stamp Duty will need to be paid on anything over £250,000.
- What happens if one person wants to leave the mortgage: If you’re a couple and you split up or one of the four friends wants to leave, you may have to sell your home or look into transferring the mortgage.
Mortgage repayments
You are all jointly liable to pay the mortgage payments. In reality, lenders don’t care who makes the payments as long as they are done so. For example, many couples will pay their joint mortgage monthly repayments from one nominated bank account.
For tenants in common, you may have an arrangement with the mortgage lender where each person pays their individual share. If one person fails to pay, the other tenants will be liable. If this results in missed payments, it can also affect everyone else’s credit scores.
Lending Criteria
As mentioned already, lenders will look at the combined income of two of the tenants. As a couple, it will be your combined income. For more than two people, they will take the two highest earners. A good guide is that they will lend around 4.5x your combined salaries, but this is just a guide. Each lender will have their own lending criteria.
Joint mortgage with a partner
A joint mortgage with a partner will most often be done as joint tenants. You can combine your savings together for the deposit and apply for the mortgage together. You will each own an equal share regardless of how much you put down as the deposit.
When you come to sell, you’ll both have an equal share in the profits. Both of you will be jointly responsible for the mortgage payments.
Joint mortgage with friends
If you’re buying with friends, think about:
- How much everyone will contribute
- How you will divide the equity of the home
- What you will do if one of you wants to leave the deal at any point
It’s also important that everyone is open and honest about their credit score and any debt problems they’ve had in the past. If one applicant has poor credit, this could mean the application is rejected. And a rejected mortgage application can affect everyone else’s credit history.
