Are you thinking of buying a house with a partner or friends? We look at what you should consider before taking the plunge.
If you are looking to get a foot on the property ladder combining your income with your partner's is one way that you can increase your buying power and secure a larger mortgage than would be possible on your own. However, it's not just couples who can opt for a joint mortgage together; joint mortgages also make it possible for you to buy a house with a friend or even a group of friends too .
What is a joint mortgage?
A joint mortgage is simply a secured loan that is taken out in the names of two or more people. However, it doesn't necessarily mean that those named on the mortgage share joint ownership of the property it's used to purchase. Instead, joint mortgages simply provide a way for couples or groups to pool their incomes together and become jointly liable for repayments on a mortgage.
When you buy a house with someone else there are two routes you can take. You can either opt to become 'joint tenants' or alternatively, become 'tenants in common'.
Joint tenancy means that you split the ownership of the property down the middle and each of you owns half (in the case of more than two people, you'd each own an equal share according to how many people are named on the mortgage). Joint tenancy means that if one of you dies, the property automatically passes to the remaining owner(s).
Joint tenancy is an option more often chosen by couples who want to share ownership of the property equally, or close friends who have perhaps experienced living together before.
Holding a mortgage on a property as joint tenants has several implications that will need to be taken into consideration before you buy. For example, if you one of you dies the mortgage will pass to the other person - which means they are then fully and solely responsible for the remaining mortgage debt. As such it's important to have adequate life insurance in place before you sign on the dotted line.
Tenants in common
The other kind of joint mortgage involves you and your fellow house-owners becoming tenants in common. This means that you each own a share of the property but the ownership is variable, so that if one of you earns a higher salary than the others they can take a bigger share of the gains (as well as the losses).
It also means that if one of you dies, the property doesn't automatically pass to the surviving owner(s) - it will pass to whoever is named in your will. Generally this type of joint mortgage is favoured by groups of friends wishing to buy a home
If you have a mortgage on a property as tenants in common, and one of you dies, any outstanding mortgage debt would pass to the remaining tenants. As such it's important for each of you to have life insurance in place.
What will a joint mortgage mean for me?
Though a joint mortgage can be a great way to buy a property with a loved one or friend, there are things to consider before you decide to make such a significant financial commitment.
If you're buying the property with your partner, remember that unless you are married you are still seen as individuals in the eyes of the law and so the property will not automatically pass to your partner if you die unless they are named in your will. Depending on the share of the property you and your partner each own, you are likely to be liable for the remaining debt if your partner dies - regardless of whether you are married or not. Again this highlights the importance of life insurance when you enter into a joint mortgage.
As 'common-law partner' relationships are not recognised by English law, you may need to draw up a cohabitation agreement which will set out the various financial arrangements and obligations arising from your joint mortgage. This applies to friends buying a home together too. It's also worth making sure both or all your names are on the mortgage deeds so that if disputes happen down the line, you will all have an equal claim on the property.
An agreement such as this should include things like what percentage share you each own of the property, how much each of you will contribute to the repayments and upkeep of the household, and what will happen if one of you decides to move out or sell up.
What else should I consider?
In any kind of joint mortgage, whether you hold the property as a joint tenancy or tenants in common, each person named on the mortgage will be jointly and severally liable for mortgage repayments. This means that you are all equally responsible for making the full monthly mortgage repayment and if one of you falls behind, the others will be chased for the late payment.
It's also worth noting that if you are married and get a joint mortgage as joint tenants, you'll still both be equally liable for meeting repayments even if you separate, get a divorce, and move out of the home (unless you sell the property). As such it is really important that you are aware of your dual responsibilities before you commit to this kind of mortgage.
If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs by comparing the best rates available.