How do joint mortgages work?
Joint mortgages ar a great way to get on the property ladder and buy a bigger & better home by pulling the financial resources of two or more people (usually up to 4) to save a bigger mortgage deposit.
Every co-buyer will have their name on the mortgage and be jointly responsible for the mortgage. This means the lender can come after all or one of you if any mortgage repayments are missed. The equity can be distributed in line with mortgage deposit contribution by having a pre-purchase agreement and declaration of trust in place.
Joint mortgages are a great option as they drastically reduce the individual time to the property ladder for many and increases your mortgage affordability as a collective.
You should watch out to ensure your fellow co-buyers have a suitable credit score, salary and savings (if they intend to contribute to the mortgage deposit as well).
A plan should also be drafted in the prepurchase and declaration of trust highlighting how this relationship will end and how you will all be able to sell your equity in the property.
Joint mortgages work just like typical mortgages, the costs are the same but the internal structure between the co-buyers is what's different. There is no change in the application process but the lender will assess each co-buyer individually to get a collective view of the groups mortgage affordability.
So how do Joint mortgages work?
You can decide to be joint tenants or tenants in common when you get a joint mortgage.
Joint tenancy means you both own equal parts of the property and need each others consent to sell or do anything to the property.
Tenancy in common means you have a pre-purchase or & declaration of trust which allows you to own unequal parts of the property and gives you the right to sell your share in the property at your own will.
Joint mortgages will also show on your credit file and the financial association to the person will be a big indicator. If this person goes on to carry out any fraudulent behaviour or misses payments on the joint mortgage or other credit obligations this may negatively impact you.
This is why you should ensure you have a fairly good idea of who your co-buyer is and have some infrastructure in place to avoid missed mortgage repayments.
If you are looking for a co-buyer then there are a few things you will like to know ofcourse to decide if they fit you. You can start your co-buyer search on our Homebae network.
Things to Consider when co-buying
So you have decided co-buying is the best way to get on to the property and now it is time for research.Here are a few things you should consider before co-buying.
You should have a trust deed:
A trust deed or declaration of trusts allows you to stipulate who owns what part or shares of the home. It also creates a structure for you to stipulate what happens when either party wants to sell their share.e.g your co-buyer might have first options to buy you out.
Dangers of joint tenancy:
If you buy as a joint tenant, this means that if one of you dies the remaining shares of the property goes to the surviving co-buyer regardless of if there is a will in place.
What if both joint tenants die?
If both joint tenants die at the same time the property will pass on to the younger co-buyers relatives. This is because the law assumes the older co-buyer will die first and the younger co-buyer will have inherited their shares. This is not great for buyers who are older than their co-buyers and hence a big reason why joint tenancy isn't such a great idea.
What if a co-buyer wants to sell?
If one of the co-buyers wants to sell they will need permission of the other co-buyer. If they cant get permission then they will need to go to the courts to force the sale.
Should you co-buy as joint tenants or tenants in common?
Most co-buyers will go with a tenants in common as it allows them to go into a pre-purchase agreement and a declaration of trust highlighting what will happen in different scenarios, who owns what amount of the home and who is responsible for what.
You can also pass your ownership to your relatives via your will in a scenario you die. Joint tenancy does not give you the same freedom and is therefore not a good option. With Joint tenancy, you both own equal shares of the property regardless of any unequal contributions and need each others permissions to sell or do anything to the property.
Do I need a pre-purchase agreement?
A pre-purchase agreement is one agreed upon by co-buyers in a joint mortgage. The agreement stipulates what should happen in different scenarios such as buyers wanting to sell their share of the property or recover their mortgage deposit.
Joint mortgages are becoming more popular as a way to get on to the property ladder. Finding a Homebae is great but a pre-purchase agreement just gives you more protection should things go wrong.
We walk you through some real life scenarios where a pre-purchase agreement could be vital and should be in place.
- You and some friends are buying a flat together and you are putting down much more of the deposit. You want reasurrances you can get your money back if anything goes wrong.
Yes, you should have a pre-purchase agreement to make sure you get the money back.
- You and your boyfriend are buying a house together and your parents have loaned you the money but want the house as security, the lender does not agree to this. Your parents want guarantees that you will pay them their money back do you you need a pre-purchase agreement?
Yes, you need a pre-purchase agreement which sets out how the money will be paid back.
- My girlfriend and I are buying a townhouse together. I have much more money than him and will pay the most of the mortgage deposit. We expect to do a lot of work to the house which I am going to finance whilst my partner sets up her company. We expect the property to rise in price and we will then sell it. We are going to take the title jointly. I am going to meet the mortgage payments. Should I have a pre-purchase agreement and is there anything else to consider?
Yes, a pre-purchase agreement is an absolute must in your circumstances and there should also be a discussion about how the property title is to be held (if equally or not).
- I am buying a first house with my friends . We are going to buy the property with mortgage deposit money we have built up together. We have been renting for a couple of years already. We earn about the same, contribute equally to a joint account and intend to pay the mortgage to the property equally as we have done with our rent. Is a pre-purchase agreement necessary?
A pre-purchase agreement may be less significant in this scenario, but would still be the preferred option so that there is an agreed timescale for sale or transfer of the property if the relationship came to an end.
A pre-purchase agreement is always great back up and you should seek independent mortgage advice first.
Co-buying is a very good way to get on the property ladder in record time and get a better property by pooling everyone's financial power together.
You should consider these factors when choosing a co-buyer
- Their finances- Can they afford to put a deposit down or maintain regular monthly payments
- Their job security- Do they have stable income or savings to cover unemployment phases.
- Their hygiene- Will you want to live with them for years and years to come
- What will they contribute and will it be equal for both the deposit and monthly repayments
- Their credit score- No point talking about the above if their creditworthiness does not match a lenders.
- What happens if one of you dies or wants to sell the property? A declaration of trust will help iron this out
- What part of the property will be your space and theirs, and which will be communal
What happens if you have unequal mortgage deposits?
If one of you contributes more to the deposit - say, 70% while you provide the remaining 30%, you may specify in your Declaration of Trust that when you sell the property the proceeds will be split in the same way (70/30). If you don't agree that in your Trust Deed (Declaration of Trust), the proceeds will be split 50/50 by default irrespective of how much each party contributed initially.
What happens if one of you earns much more than the other?
Similarly, if one of you earns more and, consequently, contributes more to repaying the mortgage, paying bills, etc.; you - again - may decide in the Trust Deed that you will be entitled to a greater share of the property. Without the Trust Deed agreement the presumed ownership is 50% share of the total property (when two parties are involved).