There are many reasons why you might want a joint mortgage.
You might be in a relationship and wanting to share the property with your partner, or you might want to split the risk and financial investment with someone else, so buying with another person can be an attractive option. Sharing a deposit on a mortgage could even mean a better deal due to a higher Loan to Value percentage. You can share a mortgage with one other person, but it’s also possible for up to four people to share ownership of a property.
There are two types of joint ownership: Joint Tenancy and Tenants in Common. They are similar in many ways: each buyer is the legal owner of the property, no buyer can be forced to leave without a court order, all buyers must agree before the property can be sold, and additional loans on the property need the approval of all the owners. However, there are some key differences that you need to take into consideration if you are considering a joint ownership.
Joint Tenants have equal rights to the whole property, so everyone has a 100% stake of the property under one shared mortgage. If one of the owners were to pass away, their share of the property would go straight to the other owner(s) – you cannot leave your share of the property to anyone else in your will.
This option is very popular for married couples as if one of you were to die, the other partner would have 100% ownership of the property. There can be a few complications, however. If it’s important to you that your child or children receive 100% of the property as inheritance, and you should die, your partner would have your share of the property and 100% choice in who inherits the property after they die. If they were to have more children, they would be within their rights to leave some of the inheritance to them, leaving less for your child or children.
If you are splitting up, you can change from Joint Tenancy to Tenants in Common, allowing you to take your share if the property and define who you leave it to. You can make this change without the other owners’ agreement, although if they agree it requires less paperwork.
Tenants in Common
Tenants in Common are better suited to groups of friends and family, or where there are more than two buyers. This is because ownership of the property is split between the buyers depending on their investment. For instance, two buyers could own 25% of the property each, while a third buyer owns 50%.
It’s important to note that having a larger stake of the property does not give you more rights to the property. Tenants in Common agreements do, however, give you greater freedom to choose what to do with your share of the property. You can choose who you leave your share of ownership to so, if you were to die, it won’t automatically be given to the other owners.
In theory, you could get separate mortgages for the different shares of property because each buyer is liable for their own share, but it would be difficult to find a lender who would agree to this. That’s why a single joint mortgage is recommended.
You can also change from a Tenancy in Common agreement to a Joint Tenancy, which might appeal to you if you get married and want to have equal rights for the whole property.
Things to consider
Before you decide that a joint mortgage is a great idea, just make sure you’re aware of the disadvantages too. The fact that you share the property gives you less freedom to do with it what you want. If you want to sell, all of the other owners must agree, and if they don’t, you would need to go through stressful and expensive legal proceedings to get a court order. A legal document defining the circumstances under which the property can be sold might help with this, as it can include how much notice is required and what percentage of the sale price each owner is entitled to.
When applying for a mortgage for a joint tenancy, it is possible to apply with up to four people. However, lenders will usually only take the top two earners into account when considering your application. Despite this, you will all be equally responsible for making repayments on the mortgage, and if one of the owners stops paying for any reason, the others need to cover that cost.
So, is a joint mortgage a good idea for you? If so, is your situation better suited to a Joint Tenancy or Tenancy in Common? If you’re aren’t sure, please feel free to get in touch and we’ll be glad to discuss it with you.