Good and bad
Joint mortgages can be a useful way to get on the housing ladder, whether the person you take one out with is your life partner or simply a friend. So what are the pros and cons?
Joined at the hip
A joint mortgage is simply one that is in two or more people’s names. One benefit of how a joint mortgage affects the property buying process is that it enables a larger sum to be borrowed. The multiple of two or more earned incomes is going to be greater than just one.
Quite often for first time buyers sharing the costs of a mortgage works out cheaper than renting, so taking out a joint mortgage with a friend is becoming increasingly popular.
Look before you leap
But before you jump in feet first there are a number of steps that you should consider before signing on the dotted line.
First, drawing up what’s called a deed of trust with the power of sale is a good idea. This means that if you fall out with your partner neither of you can block the sale of the property.
Secondly, decide between you whether you will be joint tenants that would mean you would each own an equal share, or whether you will be tenants in common. This is where the percentage split of owning the property reflects the different amounts of salary and therefore paying ability of the joint mortgagees. So the person who brings in the most salary will pay the most mortgage and they will benefit accordingly from the profits in the property when it is sold. Equally, of course they will have this very same percentage split of any losses on its value.
Thirdly, although it may seem bizarre, consider what would happened if one of you died. It’s not unheard of and although you might think the deceased’s share of the property automatically passes to the other person holding the joint mortgage, by law, it doesn’t. So make a will in which you pass that ownership over to the other person.
Finally, put both names on the deeds. If one of you is moving in with the other who already has the property mortgaged, then you will have to tell the lender of the changes.
Interestingly, if you and your partner are not married but are living as what is often know as ‘common law man and wife’ with a joint mortgage then the law does not recognise that you have any call on the other person’s money. So the name that is on the utility bills has the responsibility to pay for those bills and likewise as soon as you put money into your partner’s account to help pay for any joint bills, (such as the mortgage), that money is legally theirs.
So if you are entering into a joint mortgage you should probably also enter into some kind of legally binding ‘living together’ document that stipulates who is responsible for what and where you each hold joint responsibility.
As the demand for joint mortgages increases so the lending companies are responding with new products. Some are now coming up with joint mortgages where the multiples of income they will consider are three times one person’s salary and one times up to three other peoples!
We usually think of joint mortgages as just being between two people, but as young people find it increasingly hard to get on the housing ladder this multiple mortgage system is a way to do just that. Although even with living together agreements drawn up one can imaging how fraught some of these situations get!
The Good Life
With joint mortgages, the bottom line is that not only will you have to do all the research to find the right mortgage just as you would if you were doing it just for yourself, but you really must be absolutely confident that you want to enter into a binding agreement with the people who are in your group.
If it is your beloved who you are deeply in love with it is rather a different matter to a group of mates who enjoy sharing a beer together. If you all get on, it could the path to the Good Life, but once you start falling out with each other…it’s the road to hell