Joint mortgages (A complete guide)

In this brief blog, we are going to discuss what a joint mortgage is and what you need to get a joint mortgage in the UK.

Joint mortgages are a great way to get on the property ladder and buy a bigger & better home by pulling the financial resources of two or more people (usually up to 4) to save a bigger mortgage deposit.

What is a joint mortgage?

A joint mortgage is a mortgage you get with more than one person. A joint mortgage will have the names of all parties on the mortgage and you can distribute the equity in the property equally or unequally. This will then determine the percentage of the house you own as you pay down the mortgage and eventually when you pay off the mortgage.

Every co-buyer will have their name on the mortgage and be jointly responsible for the mortgage. This means the lender can come after all or one of you if any mortgage repayments are missed. The equity can be distributed in line with mortgage deposit contribution by having a pre-purchase agreement and declaration of trust in place.

Joint mortgages are a great option as they drastically reduce the individual time to the property ladder for many and increases your mortgage affordability as a collective.

You should watch out to ensure your fellow co-buyers have a suitable credit score, salary and savings (if they intend to contribute to the mortgage deposit as well).

A plan should also be drafted in the prepurchase and declaration of trust highlighting how this relationship will end and how you will all be able to sell your equity in the property.

Who can get a joint mortgage?

Most mortgage lenders will only offer joint mortgages to up to 4 people. You can get a joint mortgage with your friends, family or even your business partner.

You will usually need to have some established relationship with the person for you to get a joint mortgage with them.

How do Joint mortgages work?

A joint mortgage is the same as any other mortgage, the only difference is that you get a joint mortgage with one or more persons.

Joint mortgages work just like typical mortgages, the costs are the same but the internal structure between the co-buyers is what’s different. There is no change in the application process but the lender will assess each co-buyer individually to get a collective view of the groups mortgage affordability.

You can decide to be joint tenants or tenants in common when you get a joint mortgage.

Joint tenancy means you both own equal parts of the property and need each others consent to sell or do anything to the property.

Tenancy in common means you have a pre-purchase or & declaration of trust which allows you to own unequal parts of the property and gives you the right to sell your share in the property at your own will.

Joint mortgages will also show on your credit file and the financial association to the person will be a big indicator. If this person goes on to carry out any fraudulent behaviour or misses payments on the joint mortgage or other credit obligations this may negatively impact you.

This is why you should ensure you have a fairly good idea of who your co-buyer is and have some infrastructure in place to avoid missed mortgage repayments.

If you are looking for a co-buyer then there are a few things you will like to know of course to decide if they fit you. 

Things to Consider when co-buying

So you have decided co-buying is the best way to get on to the property and now it is time for research.Here are a few things you should consider before co-buying.

You should have a trust deed:

A trust deed or declaration of trusts allows you to stipulate who owns what part or shares of the home. It also creates a structure for you to stipulate what happens when either party wants to sell their share.e.g your co-buyer might have first options to buy you out.

Dangers of joint tenancy:

If you buy as a joint tenant, this means that if one of you dies the remaining shares of the property goes to the surviving co-buyer regardless of if there is a will in place.

What if both joint tenants die?

If both joint tenants die at the same time the property will pass on to the younger co-buyers relatives. This is because the law assumes the older co-buyer will die first and the younger co-buyer will have inherited their shares. This is not great for buyers who are older than their co-buyers and hence a big reason why joint tenancy isn’t such a great idea.

What if a co-buyer wants to sell?

If one of the co-buyers wants to sell they will need permission of the other co-buyer. If they cant get permission then they will need to go to the courts to force the sale.

Should you co-buy as joint tenants or tenants in common?

Most co-buyers will go with a tenants in common as it allows them to go into a pre-purchase agreement and a declaration of trust highlighting what will happen in different scenarios, who owns what amount of the home and who is responsible for what.

You can also pass your ownership to your relatives via your will in a scenario you die. Joint tenancy does not give you the same freedom and is therefore not a good option. With Joint tenancy, you both own equal shares of the property regardless of any unequal contributions and need each others permissions to sell or do anything to the property.

Do I need a pre-purchase agreement?

A pre-purchase agreement is one agreed upon by co-buyers in a joint mortgage. The agreement stipulates what should happen in different scenarios such as buyers wanting to sell their share of the property or recover their mortgage deposit.

Joint mortgages are becoming more popular as a way to get on to the property ladder. Finding a co-borrower is great but a pre-purchase agreement just gives you more protection should things go wrong.

Joint mortgage scenarios

We walk you through some real-life scenarios where a pre-purchase agreement could be vital and should be in place.

• You and some friends are buying a flat together and you are putting down much more of the deposit. You want reassurance you can get your money back if anything goes wrong.

Yes, you should have a pre-purchase agreement to make sure you get the money back.

• You and your boyfriend are buying a house together and your parents have loaned you the money but want the house as security, the lender does not agree to this. Your parents want guarantees that you will pay them their money back do you you need a pre-purchase agreement?

Yes, you need a pre-purchase agreement which sets out how the money will be paid back.

• My girlfriend and I are buying a townhouse together. I have much more money than him and will pay the most of the mortgage deposit. We expect to do a lot of work to the house which I am going to finance whilst my partner sets up her company. We expect the property to rise in price and we will then sell it. We are going to take the title jointly. I am going to meet the mortgage payments. Should I have a pre-purchase agreement and is there anything else to consider?

Yes, a pre-purchase agreement is an absolute must in your circumstances and there should also be a discussion about how the property title is to be held (if equally or not).

• I am buying a first house with my friends . We are going to buy the property with mortgage deposit money we have built up together. We have been renting for a couple of years already. We earn about the same, contribute equally to a joint account and intend to pay the mortgage to the property equally as we have done with our rent. Is a pre-purchase agreement necessary?

A pre-purchase agreement may be less significant in this scenario, but would still be the preferred option so that there is an agreed timescale for sale or transfer of the property if the relationship came to an end.

A pre-purchase agreement is always great back up and you should seek independent mortgage advice first.

Co-buying is a very good way to get on the property ladder in record time and get a better property by pooling everyone’s financial power together.

You should consider these factors when choosing a co-buyer

• Their finances- Can they afford to put a deposit down or maintain regular monthly payments
• Their job security- Do they have stable income or savings to cover unemployment phases.
• Their hygiene- Will you want to live with them for years and years to come
• What will they contribute and will it be equal for both the deposit and monthly repayments
• Their credit score- No point talking about the above if their creditworthiness does not match a lenders.
• What happens if one of you dies or wants to sell the property? A declaration of trust will help iron this out
• What part of the property will be your space and theirs, and which will be communal

What happens if you have unequal mortgage deposits?

If one of you contributes more to the deposit – say, 70% while you provide the remaining 30%, you may specify in your Declaration of Trust that when you sell the property the proceeds will be split in the same way (70/30). If you don’t agree that in your Trust Deed (Declaration of Trust), the proceeds will be split 50/50 by default irrespective of how much each party contributed initially.

What happens if one of you earns much more than the other?

Similarly, if one of you earns more and, consequently, contributes more to repaying the mortgage, paying bills, etc.; you – again – may decide in the Trust Deed that you will be entitled to a greater share of the property. Without the Trust Deed agreement, the presumed ownership is 50% share of the total property (when two parties are involved).

Joint mortgage calculators

If you are considering getting a joint mortgage then you may want to use a joint mortgage calculator to see what the lender may be willing to offer you and how your monthly mortgage repayments will differ.

You should know that any joint mortgage calculator will simply offer you an indication and is not a complete reflection of what you could potentially be offered by a mortgage lender.

How much can you borrow on a joint mortgage?

To find out how much you can borrow on a joint mortgage you should be aware that most mortgage lenders work off income multiples. This means the mortgage they offer you will be based on a multiple of your income. 

Mortgage lenders will typically have offered you a joint mortgage-based on an income multiple of your combined income but these days they use that only as a guide as to the maximum they may be able to lend t you and carry out a more thorough mortgage affordability check.

How much do joint mortgages cost?

Joint mortgages have the same cost structure as normal mortgages but of course, if you are able to put down a much bigger mortgage deposit between you and your co-borrowers. you may find that you are able to receive much better mortgage rates than you may have been offered before.

How many people can be joint owners of a property?

Most mortgage lenders will allow up to 4 people on the mortgage deeds. This means that you can own a property with up to 4 people. The only downside to buying a property with this many people is that any actions taken by one person must be agreed by all other owners of the property even if they live at the property or not. Every joint owner will also have a legal right to reside at the property except a court order says otherwise. 

As joint owners on a mortgage, everyone listed on the mortgage deed will also b liable for the mortgage repayments and if the mortgage should default then the mortgage lender could come after every party on the mortgage for the full mortgage balance outstanding until it receives this in full.

Can I get a joint mortgage with friends?

Yes, you can take a joint mortgage with friends. In fact, with property prices rising so quickly, a joint mortgage with friends starts to become a very viable option for most prospective buyers.

By buying with your friends you could pull together your financial resources together and put down a much bigger mortgage deposit which and hence allow you to get a mortgage with a much lower loan to value and possibly a cheaper mortgage rate.

Before taking out a joint mortgage with your friends you should ensure you have discussed what your future plans are and seek independent legal advice.

Can I get a joint mortgage with my parents?

Yes, you can get a joint mortgage with your parents and there are many reasons why this is becoming more common.

Your parents will likely have a much bigger mortgage deposit to put down and this may be very helpful to allow you to geta on the property ladder much sooner.  In some cases, the mortgage lender will look more favourable on you if you have your parent on the mortgage as your parent may have a longer credit history and a more stable income than yourself.

If you take out a joint mortgage with your parents you should know that your parents will be jointly liable for the mortgage repayment and if you miss any mortgage repayment this could affect their credit scores as well.

If your parents already have their own residence then they may also have some capital gains tax liabilities when they acquire another home. 

Your parents may also have to pay stamp duty at the additional rate for their share in the property. 

Depending on the mortgage lender you may be able to get a joint borrower sole proprietor mortgage which will allow two incomes to be used to assess the mortgage affordability but only one name will be put on the title deeds.

This is a good way to avoid stamp duty and capital gains tax liability for the parents.

Another suitable option will be for your parents to act as guarantors on the mortgage. This means they will not have to be named on the mortgage but can provide collateral to secure the mortgage.

Whose credit score is checked when applying for a joint mortgage?

When you apply for a joint mortgage. The mortgage lender will check the credit scores of all parties involved when working out your mortgage affordability.

Mortgage lenders will usually look at things on a case by case basis but when there is one person with a high credit score this can usually work in favour of all parties concerned.

You should know that once you take out a joint mortgage the financial behaviour of one party may not influence the credit score of the other as you may now have a financial connection on your credit file due to sharing a credit product (the mortgage).

Joint mortgages & divorce

One of the main reasons it is always advisable to seek legal advice before getting a joint mortgage is that your scenario could change very quickly and this could mean that you now need to figure out what to do without any set agreement in place. 

If you have a joint mortgage and end up divorcing from your partner then there are several options you may be able to consider but your best course of action will be to seke legal advice.

How to get out of a joint mortgage

Getting out of a joint mortgage isn’t exactly easy and in most cases, the mortgage lender is the only one who can force you to be removed from a joint mortgage.

This means that if the mortgage lender does not agree to it because they don’t think the party left on the mortgage can afford to keep up the mortgage repayments on their own then they will not accept it.

You should seek legal advice.

Add a name to a mortgage

You may want to add a name to a mortgage for a variety of reasons. Before you do this the mortgage lender will need to carry out their mortgage affordability assessments to be sure the person you want to add to the mortgage can actually afford to make the monthly mortgage repayments.

F the mortgage lender agrees and adds the persons name to the mortgage you will now both be jointly liable for the mortgage.

Your credit files will also show a financial association which may be bad if they have a negative credit file.

How to Buy someone out of a joint mortgage

There are steps to buy someone out of a joint mortgage but this process can equally be complicated.

To buy someone out a joint mortgage you should first agree on a fee with the person. 

You should then inform the mortgage lender and seek their approval. In some cases, the mortgage lender may reject the request if it doesn’t think the parties left on the mortgage can afford to keep up the monthly mortgage repayments.

Once you have bought the person out of the joint mortgage then you should arrange a notice of correction to get the persons name taken off the mortgage.

If you cannot afford to buy someone out of the mortgage with your own funds it may be possible to remortgage and use extra funds from the mortgage lender to buy the person out.

Removing names from joint mortgages

To remove someone’s name from a joint mortgage you should first inform the mortgage lender and get their approval. Once this is done you can then start the transfer of the equity process. Once this is done whoever is left will now be fully liable for the mortgage. 

You should seek independent legal and financial advice as there may be other things such as your stamp duty and capital gains tax liability which you may want to know about.

Transferring a joint mortgage to one person

Transferring a joint mortgage to one persons name will require a transfer of equity. To do this you will need to get permission from your current mortgage lender. 

The mortgage lender may not agree to this if they feel you won’t be able to fully repay the mortgage.

If you can find a mortgage lender who will agree to have you as the sole mortgage holder then you can remortgage to them and achieve the transfer of equity.

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Frequently asked questions about Joint mortgages

Below we have compiled some of the most frequently asked questions about joint mortgages.

Government schemes for Joint mortgages

When getting a joint mortgage you may be able to use a variety of government schemes to help you get on the property ladder. These include:

• Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
• Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
• Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
• Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
• Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
• Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
• Right to buy– allows you to buy your home at a discount price.
• Preserved right to buy– same as above.
• Right to acquire- same as above.

Using a mortgage broker to get a joint mortgage

You may want to consider using an independent mortgage broker to get a joint mortgage.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 11,000 mortgage products. This may have some advantages than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your remortgage is indeed a possibility before you make a full mortgage application. Once you have found a home you want to buy or are satisfied with the mortgage offer for your remortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer. Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it, they will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

In this brief blog, we discussed what a joint mortgage is. If you have any questions or comments please let us know.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.