Tenants in Common mortgage (A 5 point guide)

What is a tenant in common mortgage?

A tenant in common mortgage is a mortgage which people get when they want to both own a share of the property.

When looking to get a tenant in common mortgage you should seek independent legal advice so you are aware of your rights and obligations.

What is a tenant in common?

A tenant in common is when two people share the equity in a property through a tenant in common agreement.

Tenant in common agreements may be useful for those who want to get on the property ladder much quicker by getting a tenant in common mortgage and buying the property together.

A tenant in common mortgage simply outlines the responsibility of both tenants to each other, their rights in the property and sets out what should happen in particular events.

The tenant in common agreement allows two people to own a share in a property but there are a few things you need to know about the tenants in common structure:

If any of the people in a tenant in common die then the property will not automatically go to the other person. You can pass your share in the tenant in common property to your family or friends through your will.

The shares in the tenant in common property don’t have to be equal as you can own varying amount of shares in the property.

What to consider before agreeing on a tenants in common

It is important that you take independent legal advice as a tenant in common agreement will need to be understood properly.

You may want to consider things such as:

• Who pays the mortgage?
• What happens if one person is unable to pay the mortgage for a prolonged period?
• What happens if one person dies?Who would inherit the other tenants’ share of the property if they were to die?
• What happens if one person wants to sell the property? At which minimum price point?
• How will decisions about the house be made, such as home renovations, bills and who lives there?

Joint tenants vs tenant in common?

Who are joint tenants?

Joint tenants are where two or more people have equal ownership in a property which they have obtained likely through a joint mortgage.

With Joint tenants, ownership is equaly an dif one person dies then their shares trasfer to the other person. This is more common with married couples.

With a joint tenant, if one person wants to sell the property then the other person must agree.

who are tenants in common?

Tenants are when two people own a portion of a property but are equally liable for any mortgage debt.

With tenant in common agreements the shares in the property can be uneqaual or equal and if one person dies their shares do not automatically pass over to the other person as they could be protected by their will.

If one person wants to sell the property in a tenant in common then the other person must agree.

Why get a tenant in common?

If you want to get on the property ladder but don’t have enough money to do it alone then a tenant in common could benefit you as you get n the property ladder quicker and are still able to protect your investment. Your parents may also want to help you get on the property ladder by getting s property with you but may want to protect thir investments using a tenants in common. This can be an alternative to simply gifting a mortgage deposit.

This is also the case if you want to invest in property but don’t have enough mortgage deposit or income to do it alone then a tenant in common agreement could help you invest in a property.

Using a tenant in common may also be a way to protect your shares if you want to put them in yur will to children from a different family or family outside of your currrent co tenant.

Tenants in common can also be a tax-efficient if you put your beneficiaries or children in a trust to cut inheritance tax. You should contact your tax advisor about using tenants in common in this way. Doing this could protect your property from inheritance tax which is usually charged on properties.

Tenants in common also make it easier when considering home care fees as the Government will only means test you for your share of the property.

Getting a tenants in common mortgage or joint mortgage

To get a tenants in common mortgage or a joint mortgage you should be aware that you will be liable for a mortgage debt along with everyone else on the mortgage. Most mortgage lenders will accept a maximum of 4 people on a mortgage.

Although you can have up to 4 people on a tenants in common mortgage or a joint mortgage, the mortgage lender may only consider the income of two people towards the mortgage affordability assessments.

If anybody out of the 4 mortgage aplicants is elf-employed or has bad credit then you may find it harder to get a tenants in common mortgage or a joint mortgage with them.The mortgage lender may tighten their restrictions or request a bigger mortgage deposit.

When considering if you will be eligible for a tenants in common mortgage or a joint mortgage the mortgage lender will likely look at the below things.

Your age:

Most mortgage lenders will not lend to borrowers who may be 75 at the end of the mortgage term. If any of your co-borrowers may be 75 by this time then you may need a specialist mortgage lender who is willing to lend to you.

Your credit scores and history:

When looking to get a tenants in common mortgage or a joint mortgage then you should ensure that you have a good credit score and history and if you dont then you should look to build credit to ensure you are eligible for a tenants in common mortgage or a joint mortgage.

If you have bad credit issues then you may find that there are fewer mortgage lenders who are willing to lend to you.

Bad credit may include:

A CCJ

An IVA

A debt management plan

A default

A bankruptcy

A home reposession

You may need to use a bad credit mortgage broker who can advise you on what mortgage lenders may be willing to lend to you.

Your mortgage deposit

The mortgage lender will still expect to see a mortgage deposit which reflects their loan to value rate on the property if not they may decline your tenants in common mortgage or joint mortgage application.

The property:

If the property you want a tenants in common mortgage or a joint mortgage on is a non-standard construction property then you may find it much harder to find mortgage lenders who may be willing to lend to you. A specialist mortgage broker may be able to assist you with this.

Mortgage affordability:

Some mortgage lenders may not lend to you if you don’t meet their basic mortgage multiple requirements. A mortgage broker may be able to assist you in finding a mortgage lender willing to lend to you based on your salary. Most mortgage income multiples range between 3 and 6.

Do you need a declaration of trust?

A declaration of trust document is a document which states out the responsibilities between two tenants. It may state out how much mortgage deposit each paid, who pays the house bills, who pays the mortgage repayment an whopaays the stamp duty.

A declaration of trust can be very important as it will let each person know what is owed to them should the property be sold.

If you are a first-time buyer looking for a jont mortgage or a tenants in common mortgage then you should be mindful that to still be eligible for first-time buyer or home mover government schemes which insist you must be a first-time buyer then your co-buyer will also need to be a first-time buyer.

Without this you will miss out on the first time buyer stamp duty relief and you may miss out on some of the government schemes listed below which are only provided to first-time buyers.

Most home buying schemes which insist you must be a first-time buyer will also insist you sign a first-time buyer declaration.

The home buying government schemes include:

• Lifetime ISA– gives you a government bonus of £1,000 if you save a 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– similar to the above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Can you switch from joint tenants to tenants in common?

Yes, this is possible but will require an updated trust deed. You should seek independent legal advice about this to ensure you are fully aware of your rights and obligations.

People may be seeking to switch from joint tenants to tenants in common when they are divorced or they have had a change in circumstances and want to protect their share of the property or they could be switching from joint tenants to a tenants in common for tax purposes.

Use a mortgage broker for your mortgage in principle

You may want to use an independent mortgage broker to help you get a mortgage on your new home.

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 rather 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 based on your mortgage affordability.

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 as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.

It will also contain information on 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.

This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.

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.