How Do Joint Mortgages Work?

It’s no secret that saving for a deposit amid the current cost of living crisis has become incredibly difficult – especially without drastically stretching your finances. As a result, joint mortgages are becoming an incredibly popular mortgage product that can share the financial burden and make homeownership more achievable.

But how does a joint mortgage work?

Whether you’re planning to buy with a partner, a family member, or a close friend, a joint mortgage could help you combine your incomes, increase your borrowing power, and improve your chances of getting approved.

In this article, we take a look at everything you need to know about joint mortgages, from eligibility and borrowing limits to costs, credit scores, and how you can exit the arrangement should the need arise. Let’s jump in.

What Is a Joint Mortgage?

As the name would suggest, a joint mortgage is when two or more people apply for a mortgage loan together. This type of mortgage is particularly common for couples, family members, or friends who want to share the financial responsibility and ownership of a property.

So, what is a joint mortgage and how does it work in practical terms?

While a traditional mortgage would typically have one liable applicant/borrower, all applicants that sign the mortgage agreement are equally responsible for the repayments.

This is an important distinction: While the financial repayments can theoretically be split equally amongst all applicants, if one person cannot keep up with payments, the other signed applicants must cover the shortfall to avoid default.

One of the main benefits of a joint mortgage is the ability to combine incomes, which will often allow for the borrowing of larger amounts than single applicants might qualify for alone. Naturally, this results in the opportunity to secure a bigger property, or to secure a property without the need to overstretch the finances of a single applicant.

With that said, lenders will complete their own affordability assessment on every applicant on the joint mortgage application. This means every applicant will be subject to an assessment of their individual creditworthiness, income, and financial commitments in order to ensure all parties’ can reliably afford the agreed upon repayments.

Ultimately, a joint mortgage is a shared commitment amongst two or more people to both the loan and the property itself, making it essential to understand all the risks and responsibilities associated before applying.

At Boon Brokers, our dedicated mortgage experts specialise in explaining the nuances of joint mortgages. Whether you’re new to joint mortgages or looking to explore your options further, we can help guide you through each and every step – finding you the mortgage product that best suits your financial needs.

Who Can Get a Joint Mortgage?

Similarly to a traditional mortgage loan, almost anyone over the age of 18, who meets their chosen lender’s criteria, can apply for a joint mortgage.

Typically, two to four applicants are allowed on any one joint mortgage, however, this will depend on the lender’s policies.

The most common types of joint mortgage applicants include:

• Joint Mortgages With Friends

This option has become an increasingly popular option among friends who want to share the financial burden and quicken the process of achieving homeownership.

While securing a joint mortgage with a friend can make homeownership more affordable, it’s essential that both (or all) applicants have clear legal agreements in place to outline each person’s responsibilities, financial contributions, and ownership shares. This will prevent any financial misunderstandings that may occur in the future and protects everyone involved.

• Joint Mortgage With Parents or Family Member

Many parents choose to support their children by applying for a joint mortgage together. This option will increase the flexibility of the child by potentially significantly boosting the borrowing power and improving their chances of being accepted by lenders – especially if they have limited income.

However, it is important to note that this also means that both parties share the financial risk and legal responsibility for all repayments. As such, it’s important to consider the long-term financial implications carefully.

• Joint Mortgage With a Partner

Joint mortgages are very popular amongst couples, whether married, in a civil partnership, or in a lasting relationship, and are frequently the mortgage product of choice, allowing them to combine their incomes and share ownership equally.

This approach can allow for greater borrowing potential and will reflect their shared commitment to the property. However, clear communication about finances, credit, and ownership rights remains crucial to avoid financial disputes down the line.

Are There Ways to Split Shares In a Joint Mortgage?

Not all joint mortgages require an equal ownership, and there are often joint mortgages with unequal shares.

In the scenario whereby one party contributes more to the deposit or repayments, ownership can be split unevenly through a “tenants in common” agreement.

A tenants in common is a legal agreement that can provide the flexibility to split shares in accordance to each party’s individual financial contribution, protecting their interest.

For example, you could have the scenario of a tenants in common agreement whereby one person owns 70% of the property while the other owns the remaining 30%, with this split documented legally.

In addition, tenants in common agreement allows you to pass your share on to a beneficiary through your will. This option is generally common amongst friends, unmarried couples, or business partners who want to own a property together, but maintain control over their individual shares

Below we have provided a clear comparison, highlighting the key differences between tenants in common and joint tenancy ownership types:

If you have any questions about joint mortgages and tenants in common, Boon Brokers can support you in understanding how each agreement works in practice. Our expert advisers work closely with both legal professionals and lenders to ensure that your mortgage solution ensures a fair and legal split.

How Much Can I Borrow on a Joint Mortgage?

A major advantage of a joint mortgage is the potential to increase your borrowing power by combining incomes. On a joint mortgage, lenders will calculate affordability based on the total household income, debts, and expenses. For example:

• Let’s say that one applicant earns £30,000 and the other £55,000.
• Their combined income is £85,000.
• Using this figure with a mortgage calculator, with the typical income multiple of 4.5x, we can see that these applicants could end up with a borrowing amount of up to £382,500.

However, it’s important to note that while your borrowing power could significantly increase, lenders will take a comprehensive approach when assessing your joint mortgage application.

As such, they will carefully review all/each applicant’s individual credit history and credit scores to evaluate their individual financial reliability.

In addition, lenders consider your monthly financial commitments, such as existing loans, credit card payments, and other outgoings, to ensure you can comfortably manage the new mortgage repayments alongside your current expenses.

In short: It is not just a single applicant who will be assessed in a joint mortgage. All applicants will need to qualify and pass the affordability assessments with their chosen lender.

If one applicant has a poor financial profile or low credit score, this can reduce the amount you can borrow, or increase the interest rates you may be offered.

How Much Does a Joint Mortgage Cost?

The good news is that the costs associated with securing a joint mortgage will be largely the same as the costs for a single mortgage, only typically shared between applicants.

These costs will include:

• The initial deposit
• The agreed monthly repayments
• Legal fees
• Valuation fees
• Taxes (e.g. Stamp Duty Land Tax)

The only major cost difference that might apply to a joint mortgage application is if you decide to include additional legal work. For example, if one applicant has a larger amount of deposit and they decide they want to be legally protected, a solicitor may be hired to put this into writing.

As with any financial commitment, it’s crucial to budget carefully and clarify the exact amount of costs to be paid by each party. Remember, in a joint mortgage, all applicants are responsible for the full mortgage amount, and so any missed payments can affect everyone’s credit records.

How Does Credit Score Affect a Joint Mortgage Application?

When applying for a joint mortgage, lenders will review the credit reports of all applicants. As the mortgage application ties a joint liability, a poor credit score from one party can negatively impact the entire application, potentially leading to higher interest rates or declined offers.

While there isn’t a set minimum credit score for a joint mortgage, it is a general rule of thumb that higher credit scores will likely improve the approval chances and offered terms. This is due to the overall risk associated with all applicants. Because all applicants share responsibility, lenders will want a low-risk assurance that everyone will be able to reliably make the agreed upon repayments.

As such, before applying for your mortgage, it’s best practice to complete a soft credit check and address any credit issues by paying down debts, correcting errors, and avoiding new credit applications.

In the UK, there are three main credit reference agencies that can help you check your credit score: Equifax, Experian and TransUnion. Strengthening your collective credit profile will improve affordability assessments and mortgage conditions.

At Boon Brokers, our dedicated experts can help you understand how your credit score can impact your mortgage application, helping find you the lender that best matches your credit profile.

Getting Out of a Joint Mortgage

It is the way of the world – life circumstances can change, there may be a separation, divorce, financial hardship, or simply one party is wanting to sell their equity of the property. All of which may leave you asking the question: how do I get out of a joint mortgage?

While there are several ways in which you can leave a joint mortgage, some are more complex than others. Here are the most common ways to exit a joint mortgage:

• Selling the Property and Repaying the Mortgage in Full

The easiest way to exit a joint mortgage is to sell the joint property entirely. While this might not be the most favourable, as it can often leave certain parties looking for new housing arrangements, the sale proceeds can typically be used to repay the outstanding mortgage balance, allowing all parties to be released from their financial obligations. This option is straightforward and provides a legal clean slate,  but can depend on the property’s current market value and timing.

• Transferring the Mortgage to One Person

Another option is for one party to take full responsibility by transferring the mortgage solely into their name. This will require the individual to pass their chosen lender’s affordability assessment as a sole applicant, proving they can manage the repayments independently. Additionally, the lender must approve the transfer before it can be considered.

• Buying Out Another Party’s Share

If there is a disagreement on whether to sell the property, with one borrower wanting to remain on the mortgage, they can buy out the other party’s share of the property. This process usually involves getting a professional property valuation to determine the value of the departing owner’s stake, followed by legal agreements to transfer ownership accordingly.

There is no single ‘right or wrong’ option, and each requires careful planning, communication to ensure a fair and smooth process. It’s important to notify your lender as early as possible if you’re considering exiting to explore other available mortgage options.

Speak to a Joint Mortgage Expert

Whether you’re buying with a partner, family member, or friend, understanding and managing the intricacies of a joint mortgage can be complex… but don’t worry – we’re here to help.

At Boon Brokers, we specialise in providing expert advice on joint mortgages. Our dedicated mortgage advisers take the time to understand your requirements so that all advice is tailored to your financial situation.

In addition, Boon Brokers operates as a fee-free mortgage broker, providing free unbiased advice and guidance that will help you find the best mortgage deals on the market today.

Contact Boon Brokers today and receive expert guidance from a dedicated mortgage adviser so that you can secure your home with confidence.