For those that are keen to get on the property ladder, but struggling to find a way due to high house prices and the need for a large deposit, the opportunity to buy a property with friends could be the solution.
Most lenders offer joint mortgages for two people, but some now offer the opportunity for up to four people to secure a joint mortgage together. While the ability to buy with friends is a great step forward for the mortgage industry, there are several important considerations for borrowers.
Limited choice of lenders
Whether you apply as a pair or a group of up to four, the same mortgage deals and rates are available, although the choices are more limited for groups. Currently, Barclays, Lloyds, Metro Bank, Santander and Virgin Money are the only lenders offering joint mortgages for up to four people.
Borrowers need to be aware that lenders will assess affordability levels differently. One of the biggest issues is that some lenders will only take into account the two highest incomes. While this probably less of a problem for a group of high earners, for borrowers that need a loan that takes into account all of their salaries, it might be harder to secure the desired loan amount.
Everyone’s credit score counts
Credit scores will also impact a groups chances of securing a mortgage, so it’s worth checking that each borrower scores well. If one person’s score is not quite up to scratch, take steps to improve their score before applying for a mortgage. If even one applicant in the group is considered unable to pay their share, it is unlikely the mortgage application will be approved.
Be prepared to pay more
According to online mortgage broker Trussle, a group of four first-time buyers could pay on average an extra £1,834 on a two year fixed rate, based on a £250,000 property on an LTV of 80%, when compared to the payments of a two-person joint mortgage.
However, the smaller individual monthly mortgage payments are one of the biggest reasons people enter into a group joint mortgage. The extra cost to secure a mortgage could be considered a small price to pay to get into your own property.
What if someone wants out?
While buying with friends might seem like an attractive idea, what happens if it all goes sour or someone wants to move on? Being upfront, honest and clear about the expectations on each party at the outset is fundamental. Get a contract agreed at the start to stipulate the notice all parties need before the property can be sold, should one party want to move on.
Tenants in common or joint tenants?
Finally, you have a property, and four of you have a stake in it. What happens if one of you dies? This is where groups considering a joint mortgage should get legal advice on whether they buy as joint tenants or tenants in common.
As joint tenants, ownership passes onto the remaining owners. As tenants in common, each person can bequeath their share of the property in their will. Tenants in common may be more appropriate where each buyer contributes a different deposit so they can apportion specific shares.
A joint mortgage could be a logical choice for those eager to get on the property ladder, but living and buying with friends could potentially be fraught with problems. Do the research, get 100% commitment from everyone involved and take expert advice. Importantly, enter a joint mortgage with the expectation that things are likely to change and have a plan for what will happen when they do.
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Covering our some of clients top questions and the latest changes in the UK propertymarket. Market trends. Section 21. Letting fee bans. Generation Rent. Buying a property in a LTD company.