Guide to joint mortgages
- Joint mortgages are for two-to-four people who want to own a property together, although they don’t necessarily all need to live at the property
- Joint owners can be joint tenants or tenants in common and the decision on this matter will affect legal rights to a share of the property
- It might be harder to find lenders that accept more than two borrowers on a joint mortgage, or borrowers who don’t intend to live at the property being mortgaged
- Call 0800-073-1959 or arrange a call back for fee-free mortgage advice from London & Country on your situation
If you take out a mortgage with another party – whether with a spouse, partner, friends or family members – you’ll be sharing more than just your living space.
With a joint mortgage, each mortgagor is usually jointly responsible for meeting the repayments, yet they might not each have an equal right to the property.
It’s important that you define your rights and responsibilities with a joint mortgage and look into how you can protect your interests.
Who are joint mortgages for?
Both married and unmarried couples can have a joint mortgage.
In addition, sometimes friends or family members might take out a joint mortgage to split the costs of living together, in groups as well as pairs.
You don’t even all need to be living together to have a joint mortgage – for instance, a parent might help their child buy a home by becoming a joint mortgagor, even when they don’t intend to live in the property.
However, some lenders will require all borrowers to live at the property, so you might need to speak to a mortgage adviser to find products that are suitable for your situation.
Another common scenario is for several people to take out a joint buy-to-let mortgage as part of a business partnership.
How many people can get a joint mortgage?
Most lenders allow a maximum of four buyers to take up a mortgage together, because they require each mortgagor to be named on the property deeds. As a property deed only has space for four names, this is likely to be the maximum number who can take a joint mortgage.
One reason people may choose a joint mortgage is to increase the amount a lender is likely to offer them. But bear in mind that, even though some lenders will allow four people to take out a mortgage together, most will only take the earnings of two of them into account when calculating affordability.
How does a joint mortgage affect your credit records?
This means that, when lenders credit score you in future, they may base their decision on the credit records of people you’re financially linked to, as well as your own.
If you’re financially linked to someone with a credit record that’s better than yours, this can have a positive impact for you. But if the people you’re financially linked to default or miss payments on their own credit products, this could adversely affect your ability to get credit.
Because of this, joint mortgages are only for people who trust each other with financial management and decisions.
Joint mortgages and joint home ownership
Before entering into a joint mortgage agreement, it’s crucial that you understand the differences between this and joint ownership. If you take out a mortgage alongside other people, you all share responsibility for paying the mortgage. If one of the mortgagors fails to pay, the others will still be responsible for the debt.
To be a joint owner of the property in law, your names must be on the deeds.
In reality, joint mortgage holders are usually also joint homeowners as most lenders will insist that the names of all mortgagors appear on the deeds, but you should always check that this is the case.
Things become more complicated if you want to be co-owners, but the mortgage is only in one person’s name.
This might happen if, say, one person pays a 50% deposit and the other takes a mortgage for the remaining 50%. If this situation applies to you, it’s important to ensure you have the right legal agreements in place to protect your interests.
Legal agreements with joint mortgages
Whether you enter into a joint mortgage as a couple, a group of friends, or as part of a business venture, you should make sure you have legal agreements in place that protect everyone’s interests fairly.
You can jointly own property as either joint tenants or tenants in common and these two types of ownership define what happens with the property if your relationship breaks down, or if someone dies.
As joint tenants, each owner named on the deed has an equal right to the property. If one owner dies, the property automatically passes on to the other owner or owners. This is known as the right of survivorship and it means you can’t pass on the property in your will.
If you opt to be tenants in common, each homeowner can choose to own different shares in the property.
This is useful if buyers contribute different amounts at the outset, or contribute unequal amounts to the mortgage each month.
If one of the property owners dies, their share doesn’t automatically pass on to the other owner or owners. Instead, the share will form part of the deceased’s estate.
If a tenant in common wants their share to pass to the other owner or owners, they should specify this in a will.
Couples usually choose a joint tenancy, but there’s no reason why they can’t opt for a tenancy in common instead. They might do this, for example, so that their share passes to children from a previous marriage if they should die, rather than to their partner or spouse.
Declaration of trust
A declaration of trust is also sometimes referred to as a deed of trust or trust deed. If you choose to be tenants in common, you’ll usually need a declaration of trust drawn up.
A declaration of trust is a legally binding document that outlines who owns what, what each party has contributed and how the property will be divided in the event of a separation, sale or death.
Joint tenants can also have a declaration of trust drawn up to control how the joint tenancy can be severed.
Without one, anyone under a joint tenancy can independently sever the joint tenancy at any time, so that the property is then held as tenants in common and the tenant can then leave their share to whoever they wish.
Co-owners of property can also ask their solicitors to draft a cohabitation agreement. This covers who is responsible for things like bills, living expenses, home maintenance and possessions such as furniture.
Joint mortgages if you don't live at the property
It can be harder to find a lender if not all of the mortgagors plan to reside at the purchased property; for example, if a parent agrees to be named on a joint mortgage to help out with their child's affordability.
"Lenders may well allow the parent to go joint on the mortgage even though they won't be resident in the property," said London & Country's David Hollingworth. "That can have capital gains tax implications as it's not the parent's main residence, although advice from the solicitor should help to mitigate that.
"The other aspect of being joint on the mortgage is additional stamp duty. In most cases a joint mortgage applicant will also need to be joint on the property title. Assuming that the parent owns their own home, that means that the additional property stamp duty land tax surcharge of 3% would apply.
"Some lenders can allow for joint applicants but only require one name on the title deeds, which would avoid that additional stamp duty. That would enable the child to be the sole owner while still being able to benefit from their parent's help, if that fits the needs of all parties."
If your circumstances change, you – or one of the other co-owners of your property – may want to leave your joint mortgage.
Sometimes this will be amicable – such as a friend who co-owns your home leaving to live with a new partner – and sometimes less so, as in the case of an acrimonious divorce.
If you have a joint tenancy or a declaration of trust, things will probably be more straightforward. The out-going owner can be bought out, or the property sold and the shares allocated as defined by the joint tenancy or declaration of trust.
If you have a tenancy in common and can’t agree on how the house value should be divided, you may have to have it divided in the courts, which can prove extremely costly.
If the remaining mortgagor or mortgagors intend to stay in the property, a remortgage may be necessary to cover the cost of the out-going borrower’s share of the mortgage.
If it’s decided that the person leaving the mortgage should have a share of the equity built up in the property since it was purchased, a valuation will probably be necessary.
This could go either way – if the property value has fallen, they may find they have to leave with less than they put into the property.
You’ll probably have to engage a solicitor to handle the removal of the leaving party from the mortgage and from the property deeds. If you have a declaration of trust, it may need to be redrafted to omit the leaver.
Be aware that your mortgage lender is likely to charge for any amendment to the people named on the mortgage and deed. The remaining mortgagors may also need to have their affordability checked again to make sure the remaining borrowers can still afford the mortgage with fewer people.
By Derri Dunn