To rent or to buy?
You can read our summary on the pros and cons of buying versus selling here. But today we’re outlining your options if you’re keen to get on the property ladder, but aren’t in a position to do so by yourself just yet. The biggest hurdle is getting the money together for the deposit, which is made more affordable when split with others.
The cost of living in the capital is generally higher than elsewhere in the UK and even with London weighting on salaries, most people feel the pinch. But if you share a mortgage, on an affordable property with another person, normally your monthly mortgage payments won’t be significantly more than your monthly rent payments. In fact, buying a property even with a small deposit will often be cheaper than paying rent in the majority of cases. And you could get a larger mortgage if you buy a home with someone else. Hence, particularly because London property prices have become so high in recent years, more and more Londoners are buying their first property with a partner, friend or relative.
Can you split a mortgage?
Luckily plenty of lenders allow up to four people to get a mortgage together. You can buy a property with one or more people by applying a mortgage in multiple names, known as a joint or a shared mortgage.
How do shared mortgages work?
Every person named on the mortgage is responsible for making the repayments. You can decide between you how to share the equity in the property (this is the percentage of it that you own, increasing as you pay off more of the mortgage). If determined by the lender, the share that each of you own depends on how much each of you can afford. Each person on a joint mortgage is equally responsible for making sure the full repayment due is paid to the lender each month. So regardless of whether you have paid your own share, the lender could still pursue you for the missing money as a named person in the mortgage agreement.
There are two ways you can each own your property with a joint mortgage – as joint tenants or tenants in common.
How to split mortgage with friends
Tenants in common
As tenants in common, each mortgage holder legally owns separate shares in the property. The shares you each own don’t have to be split evenly and can be for whatever percentage you choose. You can employ a solicitor to draw up a deed of trust, which is a legal document that specifies the percentage of the property you each own. You can sell your share in the property separately and leave your share of the property to someone other than the other mortgage holder(s) in your will. This is often used when friends, family members or business partners buy a property together.
How to split mortgage with partner
With this option, all of the borrowers are legally seen as a single owner so each have equal rights to their of the asset (the property). Hence, when you come to sell the property, any profits will be split among you both equally. Regardless of who you named in your will as beneficiary to the property, the property would automatically pass on to the other mortgage holder. This is the route most used by long-term couples and family members.
How do I apply for a joint mortgage?
The process of applying for a joint mortgage is the same as applying on your own. You and the person you are buying with make the decisions, meet mortgage advisers or solicitors, and fill in and sign the application forms together rather than individually. Any changes you wish to make to your mortgage will have to be authorised by all of the borrowers. For example, if you decide that changing it to a new fixed rate deal is a good idea this would need to be agreed by the fellow mortgage holder.
What happens to my financial record?
Of course, any late or missed mortgage payments will negatively impact your credit rating and influence whether or not lenders believe that you can borrow more responsibly. But having a joint mortgage also shows on your credit record in two specific ways: as a money borrowed and a financial association.
The other mortgage holder will now be linked to you on your credit record so if they had a bad credit this could impact your own future loan applications. Any loans are listed in your credit report and will influence to what extent lenders evaluate you as being able to meet your repayments. The outstanding balance on your mortgage will also show on your credit report but this is the case with any kind of loan.
What happens to a joint mortgage if you split up or fall out?
If for whatever reason you and your fellow mortgage holder decide not to live together or in the property at all anymore there are a few options:
Sell up and move out
Tenants in common:
If you all want to move out and need the money from your share of the property to live elsewhere, selling and paying off the mortgage can be the easiest way to move on, but not the most profitable. Any equity left after the mortgage has been paid off will be split between you according to your share in a tenants in common agreement.
Exactly who gets what from the leftover funds after selling can be open to dispute with joint tenant mortgages, particularly in the case of a divorcing couple.
Keep your existing mortgage (but move out)
If you and the other mortgage holders can afford to pay the mortgage plus any other living costs and you’re on good terms, this is recommended. It’s worth considering your current mortgage agreement because, as an example, if your mortgage is fixed for several years, you may incur costs by moving your mortgage elsewhere. Therefore, if you have nearly paid off your mortgage, keeping it until the outstanding balance is paid off can be a sensible decision.
As full owners of the property you can then go about attempting to sell it for a good sale price. However depending on the current market this will either be more or similar to the price it was sold to you for.
Keep the property but buy fellow mortgage holders out
You’ll need to prove that the ongoing occupier will be able to afford the mortgage on their own but this is another option. However be aware that the existing lender is under no obligation to remove either of you or to transfer the mortgage to one name. This may involve obtaining a property valuation to see how much the property is currently worth because you will need to buy the other mortgage holder’s share in the property before the mortgage can be put in your name.
Some lenders allow payment holidays during difficult times such as divorce, or other family problems which may make paying your mortgage difficult. What’s most important is that you continue to pay your mortgage while you all figure out what you’re going to do. If any of you don’t pay your payments on time this will damage your credit history.
Tenants in common:
Mortgage holders who intend to stay in the property can buy their fellow mortgage holders out.
With a joint tenants mortgage, transferring the mortgage into one name will also involve one partner buying the other’s share in the property including their equity.