If you want to buy a house with another person you will likely be expected to take out a Joint Mortgage.
What is a joint mortgage?
A Joint Mortgage is basically exactly what it sounds like; it is a loan taken out by 2 or more people on a house rather than just a single person. This way a combined income can go towards the price of the property (often meaning the group can afford a more expensive property) and all parties will pay towards the mortgage repayments.
Each person who is part of this Joint Mortgage will have full legal claim to ownership of the property bought with it. However, ownership of the property is not necessarily split 50-50 depending on the kind of ownership chosen.
A Joint Mortgage is taken out in much the same way as taking out a mortgage, except all incomes are considered, as well as credit ratings. So, if one of you has a poor credit history, it will affect the others. Make sure everyone taking out a joint mortgage checks their credit score and takes steps to improve it.
As always, we suggest hiring a mortgage broker to help with the application process, as their knowledge and expertise can help you navigate the application as well as find you good mortgage deals.
Who is eligible for a joint mortgage?
A joint mortgage is typically taken out by either married or unmarried couples so they can live together.
However, there are no actual rules on who can take out a joint mortgage; so you can take one out with friends, with family members or even a business partner if you wanted to. The only requirement is that you’re both happy to co-own a property and share responsibility for mortgage repayments.
Additionally, if you would like to take out a mortgage with another person but they do not want to become an owner of the property, it’s possible to get a ‘Joint-borrower-sole-proprietor Mortgage’.
What kind of ownership can you use a joint mortgage for?
There are two types of ownership that are joint mortgages are commonly used for:
Tenants in Common – When each buyer owns a separate share of the property. The percentage of the house you own doesn’t have to be equal. For example, if two of you are buying the house, you could each own 50% or one of you could own 75% and the other 25%.
Joint Tenancy - When all the buyers will own 100% of the property and are known as joint tenants. This means you will all act as one entity owning the property, rather than it being divided up amongst you. All your names will be on the title deed.
What are the benefits?
The obvious benefit of a joint mortgage is that you have two or more incomes to pull together, meaning you can get a larger deposit. This means you could be able get a higher priced home than you could on your own. Perhaps more crucially, it can help First Time Buyers who might not be able to join the property ladder on their sole income.
As well as pooling together for a deposit, a joint mortgage, and therefore joint ownership, means that you will also be splitting repayments as well other costs of buying. This can mean things like stamp duty, insurance, legal fees and even household bills once you’ve moved in. Paying less individually will help make buying a little less taxing on your savings.
Are there any drawbacks
The major drawback of taking out a join mortgage is that you’ll have to rely on someone else, or multiple people, to pay towards the mortgage and its repayments. If one of you defaults on a repayment the others will have to pay it for them.
It’s really important that you completely trust the person you’re taking out this mortgage with to keep up with the repayments. You should be confident that if one of you ever cannot pay for an unforeseen reason, the other is able take some of the strain.
You will also need to plan how you will split other fees and payments so one of you doesn’t end up responsible for too much. You might choose to split each payment or allocate different payments to each other. For example, one of you will pay stap duty while another pays the conveyancing fees.
Can you get out of a joint mortgage?
If you ever decide that you don’t want to be a part of the joint mortgage anymore, for example if your relationship breaks down, it is possible to get out of it. There are several options.
If one of you can afford to buy the other person out of the mortgage, you can then transfer it into just their name.
If, however, neither of you can afford to pay the full mortgage, you could sell the property and split the proceeds towards new cheaper mortgages for new homes for each of you.
Alternatively, you could continue to jointly own the property but rent it out, splitting the income to go towards repayments and separate mortgages or rent to live separately.