Guide to joint mortgages

It can be hard for young people to buy their own home. But what if there was a way to make things easier for your own children, or grandchildren? A joint mortgage could help you lift your loved ones onto the property ladder. In this guide we’ll look at how the product works. We’ll also show you other routes to helping your loved one buy a home.

The Bank of Mum and Dad

As the cost of living rises and house prices rocket, many young people can't save for the future. Enter the ‘Bank of Mum and Dad’, which refers to parents helping their child financially. For example, they could put money towards buying a home.

Buying a home is a big deal. And many parents are unable to part with a gift or a loan towards a house deposit. If that sounds like you, a parent-child joint mortgage could be an option.

The pros of a joint mortgage

With a parent-child joint mortgage, you can combine your financial forces. You’ll both own the house and both be responsible for repayments. The pros of this are:

• A bigger deposit- Pooling your savings means you could borrow at a smaller loan-to-value ratio. As less money is owed, you'll enjoy lower monthly repayments.

• Borrow more- Using several salaries and deposits, you could also borrow more. This means your child can afford a better property than if they were buying alone.

• Better deals- With a bigger deposit and a combined positive credit history, you could get better deals.

We should also look at the disadvantages of joint mortgages:

• Eligibility- If you’re not working or are over a certain age, it could be harder for you. Some providers might not agree to loan you money over the usual length of a standard mortgage. You may have to reduce the mortgage term to meet requirements. This can increase your monthly payments.
• Joint liability- With a joint mortgage you’ll both be liable for monthly repayments. If your child stops paying, the provider can take action against both of you. If you fall into arrears, your home could be repossessed.
• Credit score- If your child has a weak credit score, you might not be able to borrow enough. Your credit scores will also be ‘linked’. So, if there’s a problem with repayments, your credit rating might be affected.
• Length of the deal- If one of you wants to get out of the joint mortgage, you might face an early repayment charge. You’ll also both need to agree when you want to sell up

How to get a joint mortgage with your child

Applying for a joint mortgage follows much the same process as a standard mortgage. You’ll both need to meet the provider’s lending criteria and be involved in the application process. This includes dealing with solicitors, signing documents, and so on. The names on the deed will have a legal claim to own the property and everyone on the mortgage will be jointly liable for repayments. You’ll need to decide how the ownership is legally defined, choosing either ‘joint tenants’ or ‘tenants in common’.

Joint tenants: You jointly own 100% of the property and inherit it if the other person dies. You can claim an equal share of any sale profits. This option is usually used by married borrowers or those in a long-term relationship.

Tenants in common: You can each own an equal or different share, and you choose who gets that share when you die in your will. This option is usually taken by parents and children buying a property together.

A mortgage provider will have eligibility requirements around age and income. If parents are older, it might not be possible to take out a full-term mortgage. If parents plan to retire, they may not meet the minimum income criteria for a joint mortgage. When it comes to making payments, you should agree beforehand who will be making them. It’s a good idea to have a written plan in place in case there are problems in the future.

What about living together?

Getting a joint mortgage with a family member doesn’t always have to mean lending money from afar. You could also get a joint mortgage and live in the property together. Multigenerational living is on the rise. The benefits include being able to afford a bigger home together, sharing childcare, and caring for older relatives. This way of life might not be for all families. It’s important to have some serious chats before making any decisions.

How to raise the funds for a joint mortgage

If you decide a joint mortgage is the best way forward, you need to decide how to fund your purchase. People without enough savings could consider the following options:

Remortgaging: You could rearrange your existing mortgage with a current or different provider. This could unlock the equity in your home.

Retirement interest-only mortgage: An option for over-55s. You have to prove you can afford to pay the monthly interest repayments. And the rest of the loan is paid off when you pass away or enter long-term care. 

Home reversion plan: With this form of equity release you sell all or part of your property to a provider. The cash you raise goes towards your child’s deposit. You won't get the full market value for the share that you sell, as the provider may need to wait many years to see the loan repaid. In addition, be aware that gifting is subject to inheritance tax. You’ll get to stay living in your home until you die or go into permanent long-term care.

Lifetime mortgage: This is another form of equity release where a loan is secured on your home. The cash is released either as a lump sum or smaller amounts as and when you need them. You don’t have to make monthly payments unless you choose to. And the mortgage is repaid after your death or if you move permanently into long-term care.

It's important to get professional advice first. If you’d like to find out more about a lifetime mortgage as an alternative to a joint mortgage, you can use Saga Equity Release. This no-obligation, no-pressure advice service is provided by HUB Financial Solutions. It's dedicated to finding out if equity release is right for you. If after taking advice you decide to take out a Saga Lifetime Mortgage provided by Just, you'll only need to pay an advice fee of £799. To be eligible, you need to be over 55 with a UK home worth at least £70,000