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Getting a mortgage with friends and family

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: August 20, 2021

Taking that first step onto the housing ladder can be tricky, particularly if you’re buying alone. As such, we hear from lots of would-be buyers who are interested in buying a property with a friend or family member.

Two incomes are obviously better than one and pooling resources with a loved one can be a great way of making the move into homeownership, but you’ll still need the right advice to get the best rates, and that’s where we come in! We can introduce you to a broker who specialises in friends and family mortgages, and we’ll do this for free!

Buying a property with family or friends

Getting a joint mortgage with friends, siblings or another non-parental family member isn’t really any different to getting one with your partner. Whether it’s with a son, daughter, brother or sister, or your best friend – the general rules around joint mortgages apply.

Buying with your parents – or with their help – however, is often slightly different, largely because of their age and income. Read on for more information about this…

Joint mortgage with parents

Parent/child joint mortgages are quite common, but if you’d like to buy with your parents as joint tenants or tenants in common, affordability and age will be the key issues.

Types of tenancy

When you buy a property with someone else, you can either do so with a tenants in common mortgage or a joint tenancy agreement.

Joint tenancies tend to be favoured by couples. With a joint tenancy you each own an equal share of the property, and when one of the joint tenants dies, the property immediately passes to the other person. If you’re not married to the co-owner, for example, if you’re sharing a mortgage with a friend, you might still have to pay inheritance tax.

As tenants in common, you don’t have to own equal portions of the property and you can decide what to do with your share if you die.

If you get a joint mortgage with friends, most experts would recommend getting a Deed of Trust written up with the help of a solicitor, outlining who owns what between you.

Can I get a joint mortgage with a retired parent?

Yes, but it might prove more difficult than it would if the parent you’re getting a mortgage was still in full-time employment.

While your parents may have the income to afford the mortgage at present, if they’re approaching retirement age you may run into some problems.

Some lenders will have an age cap in place for borrowers. This means the mortgage will not be allowed to run past that age. This can be an issue when looking for a joint mortgage with a parent. For example, for lenders with an age limit of 75 a 50-year-old mum or dad would not be allowed a mortgage term longer than 25 years as the mortgage must reach maturity before the applicant reaches 75.

Age limits differ from lender to lender. Some lenders have recently relaxed their rules, allowing borrowers to hold a mortgage up to 85 years of age. Some smaller lenders, most notably several building societies, have no strict upper age limits.

Shared responsibility

Getting a mortgage with friends means you’re sharing responsibility for the repayment of the debt. All lenders want to be sure that anyone taking out a mortgage is able to repay it and as such, the lender will want to ensure all applicants are able to manage the repayments. If you’re splitting a mortgage with a friend both of your financial histories will be taken into account.

If one of you has a poor credit history, it could impact your chances of being accepted by some lenders.

It’s also worth noting that when you take out a joint mortgage with a friend the responsibility for missed payments will fall on both of you.

Joint applicant sole owner

One way of ensuring you have sole ownership of the property is to apply for a joint owner sole proprietor mortgage. These mortgages essentially allow your parents to join a mortgage without actually being joint mortgage holders of the property.

At the moment, only a minority of lenders offer this option and, once again, the age of your parents will be taken into account. One benefit of this option is that because your parents should avoid falling foul to the 3% stamp duty surcharge imposed on second homeowners.

Would a family mortgage be more affordable?

Obviously, the more the merrier. However, there are lenders who will only take two incomes into account, while a few will combine four or more salaries. You need to get the right advice in this area, so take a few minutes to talk to one of the brokers we work with, they have whole market experience and will do everything they can to get you the best deal.

Anything else I should know about buying with friends or family?

Along with the affordability criteria outlined above, you’ll also have to meet the standard requirements that anyone looking for a mortgage  – whether that be sharing with a partner, a best pal or a parent – has to meet. This includes raising a deposit, covering the costs of solicitor fees and searches and, depending on the price of the property, paying Stamp Duty.

You can read more about the general eligibility requirements for a mortgage in our complete guide to mortgage applications.

You’ll also need to be sure that you’ll be happy sharing the home with your friends or family.

Getting a joint mortgage with friends

This works exactly the same as getting a mortgage with a sibling or a partner. Read on for more information, including how many friends you can buy with and the potential impact on the interest rate.

How many friends can I buy with?

Some lenders will allow a maximum of two borrowers while others may allow a 3 person mortgage, other mortgage lenders may allow four. Just to complicate things further, of those lenders that will allow four borrowers on a mortgage, some will only consider the incomes of two of the applicants.

Will I pay a higher rate?

No. Sharing a mortgage with a friend won’t mean you’ll have to pay a higher rate on your mortgage. If you’re able to pool resources with the friend or friends you’re buying with to raise a bigger deposit, the mortgage could actually be cheaper. That said, the number of lenders who accept four applicants and four incomes is relatively small.

Getting family help with your mortgage deposit

You could just get a deposit from parents – or indeed, any family member. If your parents or close family members do give you a deposit, however, they need to put it in writing that this money is a genuine gift and you won’t have to repay it, in order to appease the lender.

If your parents can’t or don’t want to hand you the cash for the deposit, you could consider a family offset mortgage. These mortgages are offered by several different lenders (although they often have different names so it may not be immediately obvious what they are!).

Sometimes known as family springboard mortgages or family deposit mortgages, these products allow customers to increase their eligibility with the help of their family. The borrower contributes 5% deposit and the family member who’s supporting them places 10% of the property’s value into a savings account held by the lender so the mortgage can be offset against their value. You can read more in our guide to family deposit mortgages.

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Guarantor mortgages

Another option that could help you get a mortgage with family support is a guarantor mortgage.

With a guarantor mortgage, a parent or family member essentially guarantees your mortgage debt. This means if you were to miss a repayment your guarantor would be responsible for covering the payment.

The lender will then take into account the guarantor’s income, debt, and savings, just like with any other applicant, however, the guarantor will not be named on the property deeds (as would be the case if you took out a joint mortgage with your parents.) As such, guarantor mortgages are a good option for borrowers whose income is not high enough to meet a mortgage lender’s criteria for the amount they want to borrow.

Many lenders withdrew their guarantor mortgages once Help to Buy was introduced. Those lenders that do still offer it will usually require the guarantor to offer their own property as security against the loan.

Do guarantor mortgages have higher rates?

Yes, family guarantor mortgages can have higher rates than standard mortgages. The interest rates of a joint mortgage with parents can be calculated after a chat with one of the advisors we work with.

Can I get a mortgage with three applicants?

Yes! Some lenders won’t allow more than two people to go on a mortgage, but others are more flexible and would be happy with three or four.

That said, not all of the mortgage providers who are okay with more than two applicants would be willing to allow all three or four applicants to officially declare their income. So, although three or four people might be named on the mortgage, the amount you can borrow might still be based on the combined salary of two applicants.

Speak to an expert

Buying a home with friends or family can lessen the burden, but seeking expert advice before going ahead is always recommended. We work with mortgage brokers who specialise in customers who are buying with friends or family and they could help you save you time and money on your mortgage as they will introduce you to the right lender first time.

Make an enquiry and we’ll introduce you to the best advisor for your needs and circumstances. There’s no obligation and our broker-matching service is absolutely free!

FAQs

How much can I borrow if I get a joint mortgage with a family member?

As with any mortgage, when applying for a joint mortgage with friends the lender will make a decision about how much you can borrow based on affordability.

As above, this will depend on how many incomes the lender is taking into account. Lenders will also look at your outgoings – such as how much you spend each month on bills – and factor this in.

  • Some lenders will consider 4.5 x the combined income.
  • Some lenders will consider 5 x the combined income. In the scenario above the borrowers may be able to borrow £400,000
  • There are a handful of lenders who will lend up to 6x income in certain circumstances
  • If you already own a property with family and are looking to raise additional funds, there are also some second charge mortgage lenders who will go as high as 10x income.

It’s worth noting that lenders approach to affordability is now more complex. While income multiples play a part, lenders will use an affordability model and will take into consideration things like how much you spend each month, what other outgoings you have and what could change in the foreseeable future that could impact your ability to repay.

Can I buy with family but still own the property on my own?

Yes, you can. There are various ways of doing this and they have all been discussed in this article.

See the sections on…

Can I take over a mortgage from a family member?

It is possible to transfer a mortgage between family members but there’s lots to consider.

Let’s say you’re looking to take over the family home mortgage. Firstly, you’d have to pass the lender’s affordability checks.

Secondly, the lender may no longer be offering the fixed rate deal of the current mortgage so you may not be allowed to keep that deal.

It’s also worth noting that if your parents want to ‘give’ you their mortgage-free house and they die within seven years of doing so, inheritance tax will need to be paid.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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