Getting a Mortgage with 3 or 4 People
The cost of living crisis is getting worse across the UK and many people are wondering how they can afford a mortgage as well as rising costs.
The property market, in contrast, remains buoyant and if you’re looking for a mortgage you might find affordability is an issue.
Viewing properties that are rising in value consistently against the backdrop of stagnating wages can be extremely disheartening.
The common misconception is that you can have up to two people on a mortgage you might be surprised to hear that you can get a mortgage with more than two people.
So how many people can be put on a mortgage application?
What is a multi-person mortgage and what do you need to do to get one? Let’s explore further.
What Do Lenders Class as a Multi-Person Mortgage?
There are hundreds of mortgage lenders across the UK with most of them offering mortgages that can have up to two applicants.
There are lenders however that allow up to four applicants on a mortgage.
Each lender has a different set of rules or criteria for their products and if you’re looking for a mortgage that allows more than two applicants you might find it difficult to find it yourself.
It is always a great idea to use a mortgage broker, but this is especially the case when looking for a multi-person mortgage as they are few and far between.
A good broker will know which products allow more than two applicants and will have experience in arranging multi-person mortgages (something that many brokers have never done).
Boon Brokers offers fee-free, no-obligation advice and have experience placing multi-person mortgages.
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How Many People Can Be Named on a Mortgage?
Up to four people can be named on a mortgage depending on the product.
Different lenders have different criteria, and some restrict mortgage applications to two people.
That doesn’t mean that you need to have four people on a mortgage and an application with three people is acceptable for lenders offering a multi-person mortgage product.
When you apply for a multi-person mortgage all parties will need to provide their financial information and if the mortgage is approved, all people named on the mortgage will be jointly and severally liable for payments.
This means that if you have a mortgage with three other people and they fail to make a monthly payment, then you’re liable as a single person for the whole mortgage payment (not just your share of the monthly payment).
This is a very important aspect to consider as if the mortgage goes into default or there are problems with repayment, a lender is within their rights to pursue you alone for any outstanding amount.
Can You Get a Mortgage with Friends?
Lenders prefer to lend to family members or blood relatives on a multi-person mortgage as this helps them mitigate risk.
You might be able to find a rare product that allows you to borrow with friends and it is worth discussing this option with your broker to see if it is available to you.
The reason lenders prefer family is because there is a stronger bond in that relationship.
As you will probably know, friends over your lifetime can come and go something that adds risk to lenders offering multi-person mortgages.
You can’t however change your family and the relationship is considered more stable by lenders.
As a result, they’re far more likely to lend if you’re borrowing with your parents or siblings than if you are borrowing with a group of friends.
Who is Eligible for a Multi-Person Mortgage?
To be eligible for a multi-person mortgage every person on the application will need to pass the usual checks lenders conduct.
- Evidence of income
- Credit scoring
- Affordability checks
Like a standard mortgage, a multi-person mortgage requires a deposit.
The lenders that offer multi-person mortgages have different deposit requirements.
It is a good idea to set aside at least 10% of the property value for a deposit.
Some lenders may have stricter deposit requirements for multi-person mortgages and may request a minimum of 15% be put down.
Once you have spoken to a broker who has identified the best product for you, they will be able to advise about that lenders specific criteria.
What Our Clients Have To Say
Evidence of Income
If you’re looking for a mortgage in the UK, you will need to demonstrate the income you have officially.
Normally this is done with PAYE payslips for employed people or with Tax Calculations & Tax Year Overviews for self-employed people.
This can be a bit trickier with multi-person mortgages as many people opt to borrow money with their parents.
If your parents have retired, they will need to provide evidence of their pension income.
They will also need to meet the age requirements of the lender.
A mortgage term can’t exceed the maximum age the lender offers so you might find that due to the ages of other parties your mortgage will need a shorter term.
Once again, your broker will advise about what documentation you need as well as any restrictions that may apply to anyone listed on the mortgage.
Each person will need to pass the lender’s credit scoring requirement.
A common misconception about multi-person mortgages is that if you have adverse credit (a poor credit score) you can get a mortgage if someone else has a good credit score.
A lender will want everyone on the mortgage to be creditworthy to their minimum standard.
In short, everyone applying for the mortgage will need to pass a credit score and that credit score must meet the minimum threshold of the lender.
If you’re concerned about your credit score you should first sign up for a credit scoring service and see where it can be improved.
A great service for doing this is Check My File as they collate information from the four major credit reference agencies and allow you to see your scores side by side.
Remember lenders typically one use one credit reference agency when credit scoring so you should ensure your score is accurate across all agencies.
For example, one lender might use Equifax while another might use TransUnion.
Getting your score up across the agencies prevents any unpleasant surprises down the line.
Once you’re satisfied that you have done everything you can to improve your score, you can discuss your situation with your broker and discover which lenders may be willing to lend to you.
The remaining major aspect of obtaining a mortgage is affordability.
This can be helped immeasurably by a multi-person mortgage as there are more people to spread the affordability across.
For example, if you have two people looking to buy a property for £200,000 with a 10% deposit, when equally split, each person will need to show £90,000 for affordability.
When you compare that to three people, the calculation returns an equal share of £60,000 for affordability.
And with four people, the calculation returns an equal share of £45,000.
From this example it is pretty clear the more people you have on a mortgage, the easier it is to pass the mortgage affordability calculation.
In fact, the affordability is twice as easy to pass with four people instead of two people on a mortgage.
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The Benefits of a Multi-Person Mortgage
The main benefit has been outlined above affordability.
When affordability is spread across more people it is easier for you to pass the calculation for the mortgage.
This can be extremely useful if you’re struggling to pass an affordability calculation on a standard two-person mortgage.
At the beginning of the article, we mentioned that affordability checks are getting trickier for people to pass overall due to the market conditions.
With wages remaining fairly static and inflation escalating it means our real-world incomes are decreasing.
Meanwhile, the property market is in a growth phase and over the last few years, property prices have shot up in most areas.
A multi-person mortgage eases the burden of the current market and once again makes affording a property more realistic for some people.
The Drawbacks of a Multi-Person Mortgage
There are a few drawbacks of a multi-person mortgage:
- Age restrictions
- Credit scoring problems
- Demonstrating income
- Liability in the event of default
Many people using a multi-person mortgage will have their parents on the mortgage.
Lenders have maximum age limits for their products which means one of two things in many cases:
- The applicant is too old to get a mortgage
- The term is restricted (reduced) because of the age of an applicant
Lenders have varying age caps, with most having a maximum age for obtaining a new mortgage at 70 (in some cases this can be 75).
If your parent is under 70, while they might be eligible to take out the mortgage, lenders also operate the maximum ages by which the mortgage should be paid off. Typically, mortgages must be paid by the age of 70 (in some cases 75).
By way of an example, if your parent is 64 and applying with you on a multi-person mortgage, with most lenders the mortgage term will not be able to exceed 5/6 years.
When you compare this to a young couple taking a mortgage who can get a term of 35 years, it is clear that the mortgage payments will be drastically different.
With a shorter term, you will have to make higher monthly payments to pay off the mortgage compared to a longer term which would have comparatively lower monthly payments.
One advantage of a shorter term is interest. If you hold the loan for a shorter time, there will be less interest accrued on the debt so you will make a saving on interest when compared to a longer term.
Your broker will be able to provide side-by-side comparisons of shorter and longer term mortgages to help you decide which is the best option for you.
What Our Clients Have To Say
Credit Scoring and Demonstrating Income
We have discussed this at length earlier in the article, but this is a drawback in some cases.
The more people applying for a mortgage the greater the risk that someone will have a problem with their credit history.
With demonstrating income, if you’re applying with someone who is retired or going to retire during the mortgage term, it can be tricky providing evidence of pension income.
Many people have pensions in different pots and applicants will need to source this information for the lender.
Lastly, with pension income, if your parent is retiring during the term of the mortgage, they will need to show their pension income is sufficient to pass the affordability check.
Liability in the Event of Default
We touched on this briefly earlier.
Essentially a bank has no obligation to chase all parties equally for the debt (although they make every effort where possible to do so).
This means that if you are seen as being able to make payment whereas someone else listed on the mortgage is harder to track down or unable to make payment they can ask you to make the full payment.
This is something you should consider when applying for any joint mortgage product as you will have a responsibility to the lender for that money regardless of any other applicant’s obligation or financial circumstances.
Alternatives to a Multi-Person Mortgage
There are several options for getting a mortgage in the UK and a simple joint mortgage might be best for your situation as opposed to a multi-person mortgage.
You might also want to look at a Joint Borrower Sole Proprietor (JBSP) mortgage which allows you to borrow with up to four other people but have the property listed exclusively in your name.
Multi-person mortgages can be extremely complex and it is highly advisable that you seek the advice of a mortgage broker who can help you navigate this complicated product.
Boon Brokers is a whole of market mortgage, insurance and equity release broker. We offer fee-free advice.
Contact Boon Brokers to discuss multi-person mortgages today.