Joint Mortgages – The Ideal Fit for Millennials?
5 minute read
Recent research has shown that 2% of millennials jointly own a home with a friend or relative. For many, this brings the advantage of sharing the burden of making the mortgage payments with someone else, as well as making it easier to save up for a deposit on a property.
What is a joint mortgage?
Joint mortgages for married or unmarried couples have been around forever, but historically not all lenders have allowed joint mortgages where the parties are anything other than a couple in a relationship, or close family members. Today, joint mortgages are widely available to friends or family members – or even business partners – who want to purchase a property together.
Why might a joint mortgage be attractive for millennials?
With house prices high and 100% mortgages largely a thing of the past, saving up a deposit for a property is increasingly difficult for young people. The current average UK house price is around £225,000, and for a lender offering 90% mortgages that means a hefty £22,500 deposit. With two or more friends or family members clubbing together to buy a property, it makes it that bit easier to build a deposit. Once the mortgage is up and running, the parties share responsibility for meeting the mortgage payments.
Is there a limit on the number of people who can apply for a joint mortgage?
This can vary from lender to lender. Many lenders restrict joint mortgages to only two parties, while some will allow up to four parties on a joint mortgage. It is unusual to find a joint mortgage for more than four parties.
How much can you borrow with a joint mortgage?
For each party to the joint mortgage, the lender will look at income and outgoings, such as existing credit commitments, to assess affordability. Other factors such as your credit rating and employment status will also be taken into account when working out how much you can borrow. The total amount you can borrow will also be restricted by the lender’s maximum loan-to-value (LTV) ratio. Today, most lenders limit borrowing to 90% or 95% of the cost of the property.
How much will it cost?
The monthly payments will be dependent upon the amount you borrow, the interest rate of your mortgage product, and the mortgage term. When working out whether you can afford a mortgage, it’s also important to remember other regular payments such as buildings and contents insurance, as well as up-front mortgage costs including arrangement fees, legal fees and survey costs.
How does joint ownership work in practice?
There are two ways to purchase a property on a joint basis. The first is as “joint tenants”. Joint tenants are legally seen as a single owner, with each party having equal rights with regards to the property. This type of joint mortgage is usually used by long-term couples, and it means that if one borrower dies, the other party inherits their share of the property. Similarly, any profits from the sale of the property are split equally between all parties.
The other type of arrangement is to buy as “tenants in common”, in which each party owns legally separate shares in the property, which do not have to be equal. Each party is able to sell their own share, or leave it to someone else in a will. This type of ownership is usually set up with a legal document called a deed of trust, which sets out the percentage share and any other conditions.
What to consider before applying for a joint mortgage
Taking out a joint mortgage can be a good way for friends or family members to share the responsibility of saving a deposit and making the mortgage payments, but there are some other important factors to consider. First, all parties to the mortgage are “jointly and severally” liable for the mortgage payments. That means that each borrower is equally responsible for any arrears that arise, even if you have made your portion of the payment and the other person has not. Taking out a joint mortgage will also create a financial association on your credit file; that means that any past or current financial problems on the part of the another borrower could potentially have an impact on your ability to secure credit.
Will Generation Z follow suit?
The current teenagers of Generation Z are likely to find it even more difficult to get on the property ladder as house price increases continue to far outstrip wage growth. With a recent survey showing that 70% of 16 to 18-year-olds believe they will never buy a house, joint mortgages between friends or family members may be one way for the children of Generation Z to get a first foot on the property ladder.
How Just Mortgage Brokers can help
Just Mortgage Broker’s expert advisors have years of experience in helping customers take out joint mortgages. Give us a call to discuss how we can help you find the mortgage that’s right for you.