Often homeowners might choose to join forces with family, friends or their partner to buy a property and need to take out a joint mortgage. There are many reasons why a joint mortgage might be an attractive option. It could be that buying with someone else is the only way to make owning a home affordable. By pooling your resources with someone else, you might be able to get a better property than if you were buying just on your own.
So, what is a joint mortgage?
It is a mortgage that you take out with someone else and both parties will be jointly liable for the mortgage debt. If one person cannot keep up with their share of the payments, the other will have to make up the shortfall. Usually, a joint mortgage is taken out with just one other person, although some lenders will allow up to 4 people to be on a mortgage together, with them each named in the property deeds.
Joint tenancy vs Tenants in common
If you are thinking of taking out a joint mortgage, you will need to think about how you will structure the ownership of your property. When you complete your solicitor’s paperwork, you will be asked whether you would like to hold the property as ‘joint tenants’ or ‘tenants in common’ If you are uncertain about which is best, they will be able to advise you on the most suitable way for you. Below is an overview of the difference:
This tends to be the most popular option if you are buying a property with another person, as it means that each of you will both have equal rights to the whole property. So, when the property is sold, you will split the profits among you equally. In the event of a death, the property will automatically pass onto the other owner and not to their family or beneficiary of their will. Even if this is contrary to what you state in your will, this route is often taken by married couples or those in long-term relationships, who would want their share of the property to transfer to their partner in the event of their death anyway.
Tenants in common
This option means that each party owns a specific share in the property and if one of you wishes to move on in the future, your share can be sold, and unlike the above, if you die, then your share can be passed onto a beneficiary named in your will. The shares you have in the property don’t need to be equal, so one of you could own 60% and one 40%. Your solicitor will draw up a deed of trust to specify what percentage of the property each of you owns.
How is a joint mortgage calculated?
Lenders will look at your combined incomes to help them decide what is affordable for you. They won’t just base it on how much you earn though. They will look at all of your monthly outgoings, including any other debts you both may have. They will also look at both credit reports to make sure you have both managed debts responsibly in the past. If one of you has a particularly high credit score, this can benefit the other person, especially if theirs is lower. Don’t forget that there are things you can do to improve your score, such as making sure you are on the electoral roll and ensuring that you make monthly debt repayments on time.
Getting out of a joint mortgage
Circumstances change in life, and you might find that either you or the person you have the joint mortgage with wants to get out of it at some stage, This may be because you are separating/divorcing or one of you simply wants to move elsewhere.
There are quite a lot of legal hoops to jump through and you will need to make sure you are both happy from a financial perspective and it is a good idea to seek professional advice for you. One option is to buy the other person out of the joint mortgage and for this, you will need to have the property valued so that you can work out how much equity you each have in the property. However, this can still be complicated depending on the amount of deposit you both put down when you purchased it.
It isn’t always affordable to buy someone out, especially if you don’t have significant savings available for this. You might be able to remortgage but you will need to prove that you can afford payments on your own.
The process of moving from a joint mortgage to a sole name mortgage is called a ‘transfer of equity’ The first step is to talk to your lender, as they will need to check if the mortgage is affordable for the person who is remaining on it. If they won’t agree to it, you may need to remortgage to a new deal with a new lender.
I can advise you on the best course and help you with all processes outlined above.
At KB Mortgage Services, we can help find you the best deal and save you money over the term of your mortgage.
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Note: Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment to your existing lender if you remortgage. Second charge mortgages are arranged by introduction only.
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