Joint Mortgage With Parents
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Joint Mortgage With Parents
Ollie Callister explains how a joint mortgage with parents works.
Can I get a joint mortgage with my parents? Is there an age limit here?
Of course. This scenario used to be known as a guarantor mortgage. However, changes to stamp duty rules led to it being replaced by a Joint Borrower Sole Proprietor mortgage.
Essentially, it’s exactly the same, but the parents aren’t actually on the deeds of the property. They are just an additional mortgagee. It’s not always parents either, by the way, although it’s typically a family member. We also sometimes see a child helping a parent rather than the opposite way around.
Age can be a bit of a limiting factor. Most lenders in the market from the high street still work up to the eldest applicant’s 70th or 75th birthday, sometimes a little older. However, other lenders can go higher.
They may just look at whether it’s possible to eject the parent from the mortgage at that point and the child takes it over. This will be assessed from an affordability point of view.
Can I get a mortgage with my parents if they are retired?
Yes, you can definitely get a mortgage when your parents are retired. Again, it’s going to come down to the term, their age and what’s applicable.
Typically when a parent does retire, their income reduces. That’s an additional thing for lenders to take into account – they will assess their incomes now and in the future. If it’s not enough, you may not actually increase the borrowing amount. It definitely depends on the levels of income and outgoings.
What’s the difference between joint tenants and tenants in common?
With joint tenants, the property is owned 50-50 by each owner. If one was to pass away, their share goes to the other surviving party.
If it’s tenants in common, that ownership doesn’t necessarily have to be 50-50. It could be 60-40, or even 90-10. If one party was to pass away, their share wouldn’t necessarily go directly to the other person. It would go into their estate, and be passed on in line with their Will.
How much can you borrow with a joint mortgage?
If you’re looking to get a joint mortgage with a parent, typically you’re looking for additional borrowing. The income multiples and affordability that lenders use, however, are still the same. You’re typically looking around about 4.5 to 5.5 times the total income.
Obviously, it’s always subject to affordability. Essentially, by going from one applicant to two applicants you increase the income and therefore the borrowing.
In some cases, you might have two applicants with two parents on the mortgage, and you can potentially use all four incomes to increase that borrowing ability. That 4.5 to 5.5 times income multiplier will still apply.
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What criteria needs to be met for a joint mortgage?
General criteria still apply around properties and incomes, etc. With most high street lenders, your joint borrower does need to be a family member, whether that be a parent, grandparent, (subject to ages), child or even a sibling.
If you are limited by their age, that could reduce the term and increase the size of the payments. It could also reduce the total borrowing without affordability coming into play.
It’s also about the joint borrower’s circumstances. Any debts or differences in affordability may not necessarily increase your total borrowing – and could even reduce it. It’s very important to consider their circumstances.
Who pays the mortgage on a joint mortgage? Is it split 50-50?
With any mortgage, any party to that mortgage is liable for the payments. Typically the parent will come on the mortgage for the additional borrowing, but it will be the child that makes the payments.
With any kind of joint borrowing mortgage, the additional party has to have separate legal representation to confirm that they understand what they’re liable for. If the child stops paying the mortgage for any reason, that additional mortgagee will be liable for the payment.
It doesn’t have to be split 50-50. One person can just make all the payments if that’s what they decide between them.
How do mortgage lenders assess affordability on a joint mortgage with parents?
It’s the same as a standard mortgage with the same income multiples and affordability. Some lenders set a limit of two people or two incomes. That could be a child and one parent coming onto the mortgage to help.
In some cases, they allow four people and four incomes, which could mean you can borrow more. It would need to be affordable for the individuals on a monthly basis.
Can you get a joint mortgage with other family and friends?
The majority of lenders allow specific family members – parents, grandparents, siblings and children. However, others can look at friends and other non-family members. Not so many lenders work in that market and you might be more limited by other criteria, but it is potentially possible.
What happens if only one person pays the mortgage?
It is possible for one person to make the mortgage payments, in line with what’s agreed at the start. But, of course, anyone on that mortgage is liable to make the monthly payments. If one party decides to stop making the payments, it could affect the others’ credit profiles and their future borrowing abilities.
What alternatives to a joint mortgage with parents are there?
As mentioned, it doesn’t necessarily have to be your parent – it could be an alternative family member or friend. But the main aim of a joint mortgage with a parent is to gain additional borrowing.
An alternative approach could be a longer term fixed rate mortgage. Some lenders in the market now have ‘lifetime’ mortgages. These could be fixed for 25 years or 35 years, and bring with it increases to income multipliers.
Some lenders have specific five or 10 year fixed rate products for First Time Buyers. Again, these have higher income multipliers – so this could do a very similar thing to a Joint Borrower Sole Proprietor mortgage.
What else do we need to know about getting a joint mortgage with parents?
A key element of these mortgages is that the joint borrower just comes onto the mortgage and not onto the actual deeds to the property. Typically a parent will already own their own home.
If they were to come on as a joint owner of the property, there would potentially be additional stamp duty payable. Also, the child wouldn’t get the stamp duty saving that First Time Buyers are entitled to as their joint owner has bought before.
As a sole proprietor, the child owns the property and no additional stamp duty is paid, which is quite a big saving. The parent is just there to help the affordability. As we’ve mentioned, the additional borrower will need separate legal advice to confirm that they’ve understood the risks of coming on to the mortgage.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
For specialist tax advice, please refer to an accountant or tax specialist.
Joint Borrower Sole Proprietor Mortgage (Part 3)
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What you need to know…
You can get an indication of how much you can borrow by using our handy “how much can I borrow” calculator. The actual amount you can borrow will depend on your credit commitments, your regular monthly outgoings and how each lender assesses your income.
It may be possible to borrow more than our calculator shows you, that’s where the expertise of our personal advisers comes in and where our independent status benefits you.
The minimum deposit required is 5% of the property purchase price. Most lenders will allow the deposit to come from a gift and some lenders will even consider this being raised via a personal loan. There are government incentives to help boost your savings if you are a first time buyer. Depending on your circumstance you may either need to have a larger deposit or will perhaps want to put a larger deposit down, due to preferable interest rates.
Because we are independent mortgage brokers we will be able to secure you the best deal for your circumstance.
An Agreement in Principle, also known as a ‘Decision in Principle’ will be provided after affordability and credit checks have been approved. An Agreement in Principle is extremely useful to increase your confidence when viewing and offering on properties. Estate Agents will typically want to see an Agreement in Principle before presenting your offer to the seller. Our personal advisers can help you with this.
It’s a requirement of your mortgage to have buildings insurance. This covers the bricks and mortar of the property.
It’s also a good idea to take advice from your personal adviser on protecting you and your loved ones if something bad happens. For example: Life Cover, Critical Illness Cover and Income Protection.
Being accepted for a mortgage does depend on your circumstances. We are experts with all types of mortgages…. We specialise in obtaining mortgages for the self-employed, contractors, construction industry scheme (CIS) workers and those with historic adverse credit (as well as employed people of course). In all these situations we can frequently secure high street deals. Being independent and experts is a real benefit in these circumstances.
Your monthly payments will vary according to the chosen mortgage term, choice of product, level of deposit and repayment type. You can get an indication of the monthly payments by using our calculator below, but it is best to chat with a personal adviser to find out exactly what interest rate and term you can secure to give an accurate monthly payment.
Most of the first time buyers we have helped secure a mortgage are paying less on their mortgage than they used to pay on rent. This does, however, depend on circumstances. The mortgage term chosen is a major factor which can be dictated by your age and intended retirement age. Of course, it is also worth noting you are paying back the mortgage and once it is repaid you won’t have any rent to pay.
There are costs associated with purchasing your first home. You will need to pay legal fees and other potential costs include a survey fee, stamp duty (which is a property land tax) and administration fees. There are First Time Buyer government incentives on savings and stamp duty that can help you with raising the monies for a deposit, costs and reducing stamp duty. Our personal advisers can give guidance within a free consultation.