This guide was last updated 29 March 2017
Buying a home has many complications that aren’t easy to tackle on your own.
There are the incredibly high property prices – especially in London – for one, then there’s saving up for the deposit, not to mention the difficulties in getting approved for an affordable loan. That’s why, in recent years, there has been an increase in friends (in this blog representing peers, relatives, married couples and civil partners) buying a property together with a joint mortgage. But is this as smart as it sounds?
It’s easy to see why buying with friends is so popular, the most obvious reason being that you can share the expenses. If you’re getting one mortgage between you, it’s a lot easier to split that initial deposit between two (or more). The more funds you have for a deposit, the better the mortgage rate deals will be (it’s known as the Loan to Value percentage; we expanded on this in our Remortgages: 3 Things to Consider blog). Throughout the tenancy, the owners will build equity and, when the time comes to part ways with their housemate, that equity you have built can be put towards getting a property all to yourself.
It’s also significantly easier to get a mortgage approved when you have two people applying for the loan. Not only does your combined income mean you qualify for a larger mortgage than if you were alone, but if, for whatever reason, one buyer stops paying the mortgage, the other must keep paying, making your application seem like a safer investment for lenders.
It’s not all good news, however. The first thing to consider – long before even applying – is how likely you are going to enjoy living with your friend. While we could talk endlessly about unwashed dishes and dirty underwear on the lampshades, there’s a legal concern that is perhaps more pressing. If you jointly own a property with someone else, then neither one of you can force the other out or sell the property without permission from the other owner, or a court order. It’s wise to have an agreement written up (and reviewed by each owner’s lawyer) that defines what will happen in the event of someone wanting to leave early.
You’re also putting a lot of faith in your new housemate. If they stop paying their mortgage or do anything that will hinder their credit rating, your credit rating will also be affected.
There are two main types of mortgage that can help with joint ownership:
With a joint tenancy, all the applicants (a maximum of four) are seen as one client, legally speaking. That means there are no ‘shares’ of the property or the mortgage – if someone wants to leave the property, they cannot sell off their share. If one of the owners die, their property falls to the other owner – it can’t be left in a will to anyone else. This is quite typical when married couples, or those in a civil partnership, wish to buy a house together.
Tenancy in Common
A tenancy in common differs from a joint tenancy in that each owner has a share of the property and mortgage. The share doesn’t need to be equal, either – that’s up to the applicants. What this means is the different owners can sell their share of the property when they want to, and if one of the owners were to die, the property share would move to whoever is in the will, or the next of kin. It’s the favoured method of joint mortgage among peers and relatives.
Finally, it’s very important you understand liability in a joint mortgage. You are both liable, and that means if one person leaves or stops paying their mortgage, then you will need to cover their remaining mortgage payments.
Getting a joint mortgage can be tricky when there is more than one interested party, and it becomes even more complicated with more than two. This is why we strongly advise you contact a broker to give you the best chance of not only being accepted for a mortgage but receiving the best possible deal. Our experienced mortgage experts would be happy to help, so feel free to contact us if you have any questions!