With a joint mortgage, two people or more pool resources to buy a property.
The most common arrangement is between spouses or life partners, but it’s not unusual nowadays for friends, siblings or other relatives to buy property together.
Each homeowner is named on the deeds of a joint mortgage. There are two types of joint mortgage arrangement available: joint tenants or tenants in common.
In the eyes of the law, joint tenants are viewed as a single owner, so a single joint mortgage is taken out and all parties own all of the property. If the property is to be sold, everyone must agree.
Joint tenants have ‘right of survivorship’, meaning if one party should die, the property automatically passes to the other(s); it isn’t possible for one owner to leave their ‘share’ to someone else in a will with prior agreement of the other party. This is the typical arrangement for married couples and life partners.
Tenants in common
With a tenants in common arrangement, each owner owns a specific share of the property, and the shares don’t have to be equal. Say there are three owners; one can own half of the property and the other two 25% each. This arrangement is more typically used by friends or relatives who buy property together.
In theory, each owner could arrange their own separate mortgage, but in practice, lenders are likely to insist on a single joint mortgage arrangement.
Everyone has to agree if the property is to be sold. However, there is no ‘right of survivorship’, meaning an owner can leave their ‘share’ to someone else in a will.
Pros and cons of a joint mortgage
If people are struggling to buy property, pooling resources for a deposit and sharing the load of the monthly mortgage payments can get everyone on the property ladder.
Being able to combine incomes can also help you meet affordability criteria that would otherwise prevent you from being accepted for a mortgage.
However, if one party has a spotty credit history, the mortgage could cost more for everyone. Additionally, if one person is unable to pay, it’s up to the other(s) to make up the shortfall and ensure full payment is made to the lender.
If you fall out, living together could be problematic, and it’s not as easy to get out of a mortgage arrangement as it is a rental agreement. If you want to sell the property and the other(s) don’t, you’re stuck. You can, however, take a legal route to obtain a court order to force the sale.
When you take out a joint mortgage, you create a financial link between you and the other party (or parties). If anyone should get into financial difficulty, everyone can be affected.
Joint mortgages usually have interest rates comparable to standard mortgages. It’s a fallacy that married couples get preferential mortgage rates. If both spouses have a good income and credit score, they’ll do better than a married couple with lower incomes and a patchy credit history – but that’s true of anyone looking for a mortgage, married or not.
Someone can have their name on the deeds but not on the mortgage. In that case, they are a joint owner, but not financially liable for the mortgage payments. This might be the arrangement if, say, one party has huge savings and so provides the deposit.
It’s important to get any arrangement in writing. As well as setting out financial responsibilities for the mortgage, you need to decide how you will handle shared utility bills, repairs and renovations.
If you want to transfer a joint mortgage to just one person, you can. The process is relatively straightforward and known as Transfer of Equity. All parties remain responsible for paying the mortgage until the transfer is complete. It’s prudent to enlist the help of an independent advisor.
If a couple were to split up, what happens to the joint mortgage depends on what they want to do with the property. If no one wants – or can afford – to keep it, then it will be sold to a third party, but the owners remain responsible for paying the mortgage until the sale goes through.
If one party wants to keep the property they may buy the other out, but whether they are able to will depend on whether they can afford to take on the mortgage.
Take professional advice
Taking on a shared financial commitment is a big step, so it’s a good idea to take some professional financial advice before you sign on the dotted line. Here at Mortgagemove, we can also help find the joint mortgage deal that best suits your circumstances, so get in touch today to get started.