Joint Mortgages: Could Sharing a Mortgage With Your Friends Get You Up the Real Estate Ladder?

It’s not the best time to be a first-time buyer. Mortgage rates have skyrocketed over the past six months and house prices remain stubbornly high.

Taken together, these conditions bring affordability to an all-time low. Relative to income, house prices are at their most expensive in almost 150 years, with a typical house now costing nine times the average wage.

At the same time, the government’s flagship program for first-time buyers – Help to Buy – ended in the fall.

But there are still options for those who need help buying their first home. One of these is a joint mortgage, which allows up to three people to buy a property together.

This is the most popular method for first-time buyers to finance their home. An analysis by Halifax shows that more than six in ten of the group opt for a joint mortgage.

Often used by couples, it is increasingly used by friends or siblings who want to buy a house together.

We take a look at how the loan works, its pros and cons, and whether it could be a way for first-time buyers to climb the real estate ladder.

What is a joint mortgage and how does it work?

A community mortgage works just like a regular residential mortgage — you pay a down payment on the property and then borrow for the residual value.

The people named on the mortgage can split the deposit among themselves, reducing the savings required per person. Monthly payments can be made together, and a lender decides how much you can borrow based on your combined income.

If you want to update the mortgage, all holders must agree. The same is true if you switch to a new mortgage deal or a different rate with the same lender, or switch lenders all together.

There are two different types of joint mortgages, joint tenants and joint tenants.

Joint tenants all have equal rights in the home, share profits equally on sale, and inherit the property if a borrower dies — essentially acting like a single owner.

With a shared tenant agreement, the borrowers have separate interests in the entire property, which can be divided at will. This means, for example, that a person could pay a larger deposit in exchange for a larger share of the value when they sell.

If one of the owners dies, they can pass their ownership share on to a beneficiary in their will – and not to the other common tenants.

“You don’t need a special mortgage to be a co-tenant,” says Nicholas Mendes, mortgage engineering director at John Charcoal. “All you need is a regular mortgage and your solicitor will determine ownership.”

Mortgage rates for joint mortgages are the same as sole ownership, so buying together doesn’t put you at a disadvantage.

Who Can Get a Joint Mortgage?

In theory, anyone can take out a joint mortgage as long as they meet normal credit standards that a lender requires, such as: B. Affordability and creditworthiness.

You can usually take out a mortgage with up to three other people. They can be friends, relatives, or a partner, although lenders vary on what they allow.

There are also options within the products to accommodate different scenarios.

For example, a mortgage for a joint borrower, a sole proprietor mortgage, is shared between a child and the parent. You will share responsibility for the repayments, but only you will own the property.

However, not all lenders offer this option, so it’s always worth speaking to a mortgage broker to find out which option is best for you and what’s available on the market.

Couples often opt for a joint renter option, leaving them to decide how to split monthly payments, which are often drawn from a single direct debit.

Friends or relatives may prefer to buy as joint tenants, allowing for more flexibility in both financing and ownership.

What are the benefits of a joint mortgage?

For first-time buyers, the most obvious benefit of buying with someone else is splitting the cost. Taking a down payment is one of the biggest hurdles for those trying to climb the real estate ladder, and splitting up the sum reduces the amount each buyer has to save.

Whether they are joint tenants or joint tenants, monthly mortgage payments are reduced compared to sole ownership, meaning they may be able to purchase a more expensive property.

For tenants in joint contracts, joint ownership between co-owners adds up to 100 percent. This is unlike joint tenants, where each co-owner owns 100 percent of the entire property.

The division for tenants in joint contracts can be any. For example, Mendes says, Cristina could own 50 percent, Dave could own 25 percent, and Ellie could own 25 percent — or they could each own a third at 33.33 percent.

What are the disadvantages of a joint mortgage?

Trust in your co-owners is crucial as you will take on the mortgage debt together. The downside, therefore, comes from the risk that another person might not be able to keep up with the payments.

Edward Checkley, chief executive of mortgage adviser Advias said: “Remember that all parties are responsible for the mortgage debt and if one party fails to meet their obligations then the others will have to pay the full amount.”

If you decide to sell the property you will need the approval of all owners to proceed. If they don’t want to, the matter can end up in court. In order for a person to sell their share, their co-owners must buy them out or find a buyer just for their share.

As a first-time buyer, you currently benefit from stamp duty relief. First time buyers paying £300,000 or less for a home pay no stamp duty and those paying between £300,000 and £500,000 pay 5 per cent on the purchase price over £300,000.

Those buying a property over £500,000 will not get relief.

However, if you take out a joint mortgage with someone who is not a first-time buyer, you will lose the tax break and will have to pay stamp duty in full.