In these days of soaring house prices, it can be very difficult to afford a mortgage for a new house, whether as a first-time buyer, someone looking for a larger property, or someone moving to a more expensive area of the country. If there is going to be more than one working adult living in the property to be bought, a joint mortgage can help bring the price nearer within reach.
What Are Joint Mortgages?
A joint mortgage is when two or more people co-operate to take out a mortgage, pooling their income and deposit resources in exchange for both owning a share in the property and taking on part of the liability for the mortgage debt. Usually, a joint mortgage is taken out by a couple, whether married or unmarried, but there’s nothing to stop two or more friends getting together to share the mortgage load.
Joint Mortgage Advantages
The main advantage of a joint mortgage is that by including each applicant’s income in the calculations, a larger mortgage amount can be offered, meaning a wider range of houses becomes available. A second, smaller, advantage is that if one of the applicants has some poor credit in their history, taking out a joint mortgage with someone with a better credit rating – even if with only a small income – can reduce the interest rate the lender might offer as the overall risk is lessened.
So those are the main advantages to joint mortgages. As with anything though, there are downsides too. The main one is that even though the mortgage was taken out by using two or more incomes in calculating how much the lender was prepared to advance, each individual named on the mortgage agreement is legally liable for the entire amount borrowed.
If one applicant loses their job, it makes no difference to the lender – the full repayments must still be made even if that responsibility falls solely on the shoulders of a single applicant. In the even more unfortunate situation that one of the mortgagees dies, the full liability for the debt passes automatically to the survivor. For this reason, it’s vital for both parties to have life insurance in place to cover this possibility, however unpleasant it might be to think about in advance.
On a related note, there’s a vital point about joint mortgages that needs to be borne in mind: although every applicant will be liable for the whole mortgage debt in case of death, it’s not necessarily the case that ownership rights will be automatically transferred in the same situation. If the joint mortgagees are married, then if one spouse dies their share of the property will by default be transferred to the other.
If the mortgagees are an unmarried couple or just friends, then this isn’t the case – the ownership share in the property will be passed on according to normal inheritance rules, which could lead to the unfortunate situation of half of an unmarried partner’s house being owned by the family of the deceased partner. To avoid this, it’s highly recommended for each applicant to make a will specifying that ownership should be passed on to the other mortgagee.
You should also ensure that all the applicant’s names are listed on the title deeds of the property so that there’s no doubt whatsoever about the ownership – if only one joint mortgagee’s name is on the deeds, then theoretically the other has no ownership rights at all should there be a dispute through death or separation.
Veto on Sale
A final point to watch out for is that with joint mortgages, each party has a veto on the sale of the property. This can lead to some very messy situations if the joint mortgagees fall out, separate, or even if one disappears without trace – it can leave one of the parties unable to recoup the investment they’ve made with their payments over the years, while still being liable for any remaining debt and at risk of losing everything through repossession. To avoid this, draw up an agreement beforehand that stipulates that in the event of a dispute, neither party can unreasonably block a sale.
All this might sound as if joint mortgages are a minefield, but it’s really not the case. It’s just a matter of making sure you have all your legal ducks in a row before signing on the dotted line to take advantage of the benefits these mortgages offer. It’s far better to be prepared as who knows what the future holds?
Applying for a Joint Mortgage
Nearly all mortgages from most lenders are available in joint versions, and indeed some lenders will insist that married couples take a joint mortgage rather than a single one, as it gives them more security and options if payments aren’t kept up.
The only thing left to consider before applying is which of the two types of joint mortgage to take out. With a ‘Joint Tenancy’ mortgage, both debt liability and ownership are split 50/50 between the applicants – this is by far the most usual choice for married or unmarried couples. If the mortgage is being taken out by a group of friends, or by an investment consortium, then a ‘Tenants in Common’ mortgage might be the better choice – with these, different applicants can take on different percentages of repayment liability and therefore ownership share of the property.
Group mortgage (three applicants or more)
It is possible to get a joint mortgage for more than two people. Not all lenders will allow this but there are high street lenders which will do it. Usually group will be limited maximum to four applicants.
The amount that can be borrowed is based on the incomes of the individuals within the group and the property is then owned in equal proportions.
Is a Joint Mortgage for You?
If you’re a married or unmarried couple who are both working then, the answer is almost certainly ‘yes’. You’ll be able to borrow a larger amount, or alternatively, the extra income you can declare means that you should get a lower interest rate than with a single mortgage for the same amount.