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 home-ownership. In this article we’ll cover:
All lenders have their own criteria - and their own products - for borrowers looking to buy with friends or family and what they will and won’t accept differs quite a lot. We can refer you to one of the specialists we work with who deal with enquiries just like yours on a daily basis so get in touch today!
Can I get a mortgage with a friend?
Getting a mortgage with a friend is essentially no different to buying with your partner, but there are additional factors you may want to consider.
Types of tenancy
When you buy a property with someone else, you can either do so as tenants in common or as joint tenants.
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 owner. If you’re not married to the co-owner, for example, if you’re sharing a mortgage with a friend you may still have to pay inheritance tax.
As tenants in common, you don’t have to own equal shares of the property and you can decide what to do with your share of the property if you die.
If you get a joint mortgage with friends, it’s worth getting a Deed of Trust written up with the help of a solicitor, outlining who owns what between you.
Getting a mortgage with friends means you’re sharing responsibility for the repayment of the mortgage. 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 history’s 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.
How many friends can I buy with?
Lenders offering joint mortgages for friends have different approaches when it comes to how many borrowers are allowed. Some lenders will allow a maximum of two borrowers while others will allow four. However, 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.
How much can I borrow?
As with any mortgage, when applying for a joint mortgage with friends the lender will make a decision on how much you can borrow based on affordability. As above, this will depend on how many incomes the lender will take into account. Under new affordability rules, lenders will also look at your outgoings - such as how much you spend each month on bills.
Will I pay a higher rate?
No. Sharing mortgage with a friend will not 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. With that said, the number of lenders who accept four applicants and four incomes is relatively small, so it maybe that you may not be offered the most competitive interest rate on the market at the time.
Anything else I should know?
Along with the affordability criteria as 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’ll also need to be sure that you’ll be happy to share the home with your friends or family.
Buying with family
Getting a joint mortgage with siblings is just the same as buying with friends, so whether it’s with a son, daughter, brother or sister, the rules above apply.
Buying with your parents - or with their help - however, is slightly different largely because of their age and income.
Getting a 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. 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 a number of building societies, have scrapped age limits altogether.
Why does age matter?
Simply put, if you’re approaching retirement age lenders will be concerned about your income dropping dramatically!
How much can I borrow if I get a joint mortgage with a family member?
Again, this will differ from lender to lender.
Some lenders will consider 3 x the combined income. That means if you earn £30,000 and your father earns £50,000 you may be able to borrow £240,000
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 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 a little more complex, however. 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, and there are various ways of doing so.
Joint applicant sole owner
One way of ensuring you’re the sole owner of the property is to apply for a joint mortgage sole proprietor mortgage. These mortgages essentially allow your parents to join a mortgage without actually being joint owners of the property.
At the moment only a couple 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 won’t be listed as owners of the property on the Land Registry they should avoid falling foul to the 3% Stamp Duty surcharge imposed on second homeowners.
Help with deposits
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 look into an offset family mortgage. These mortgages are offered by a number of different lenders (although they often have different names so it may not be immediately obvious what they are!).
Family offset mortgages
With an offset family mortgage your parents or close family member can use their savings to help you get onto the property ladder without having to actually give you the money.
With a family offset mortgage the money is, again, put into an account linked to your mortgage but this amount is then deducted from the full mortgage amount - making your mortgage repayments cheaper.
It’s worth noting that while your parents (or grandparents) will get their money back in full, they will have to lock it away for an agreed period of time (usually until a hefty chunk of the mortgage has been paid off).
Different lenders offer different variations on the family offset mortgage. Some will allow interest to be earned on the savings. The experts we work with can help to find the right solution for you.
Another option 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 lenders 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 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 in order to assume the mortgage. If you don’t, the lender will not let you take over the mortgage.
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.
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 incomes. You need to get the right advice in this area, so take a few minutes to talk to one of the advisors we work with, they have whole market experience and will do everything they can to get you the best deal.
Talk to us if you want the best advice on mortgages with family or friends
If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
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.
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.
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!
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