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Getting a joint mortgage with your child

Is it the best option for them – and for you?

How a joint mortgage can help you buy a house for your adult child

We all know that getting on the housing ladder is expensive, but could buying a house with your child be a smart way to help them realise their home ownership dream? In this guide we look at joint mortgages and other routes to investing in a home together.

Why are parents opening up the “Bank of Mum and Dad”?

It’s no secret that as the cost of living continues to rise and house prices rocket, many young people are struggling to save for the future. Enter the so-called ‘Bank of Mum and Dad’, which refers to parents giving financial assistance to their sons or daughters, for example, by putting money towards a property purchase.

The numbers paint a stark picture. According to research conducted by Opinium for Saga Equity Release, 25% of parents over 50 expect to be giving financial support to their adult children this year (and expect to continue doing so in the future).

Buying a house is a big investment, and understandably, many parents are unable to part with a gift or a loan towards a house deposit. If that sounds like your family, one approach you could consider is to take out a parent-child joint mortgage.

The pros and cons of getting a joint mortgage

With a parent-child joint mortgage, you can combine your financial forces so you’ll both own the house, and both be responsible for making repayments. This can give you some key advantages:

  • A bigger deposit: Pooling your savings together means you could borrow at a smaller loan-to-value ratio, meaning less money owed overall, and lower monthly repayments.
  • Borrowing more: By combining two (or more) salaries and deposits, you could also borrow more so your child can afford a better property than if they bought by themselves.
  • Better deals: With a bigger deposit and a combined positive credit history, you could qualify for some of the better deals on the market.

There’s no place like home, so in the interests of balance, it’s also important to consider the disadvantages of getting a joint mortgage with a family member:

  • Eligibility: If you aren’t working or are over a certain age, 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, which would increase your monthly payments.
  • Joint liability: With a joint mortgage you’ll both be liable for monthly repayments, so if your child stops paying, the provider can act against both of you. This could mean that if you fall into arrears, your current home would be at risk of repossession.
  • Credit score: If your child has a weak credit score then you might not be able to borrow as much as you need. Your credit scores will also be ‘linked’ so if there’s a problem with repayments, your credit rating would be affected.
  • How long a deal lasts: Circumstances change and if one of you wants to get out of the joint mortgage, you might be hit by early repayment charges. You’ll also both need to agree when you want to sell up.
  • Tax issues: Even though first-time buyers are entitled to a discount on Stamp Duty up to certain property values, if you’re already a homeowner then you’ll have to pay a second home surcharge usually of 3%. You’ll also have to pay Capital Gains Tax when you come to sell on any gains made.
  • Family tensions: You’ll be making a lot of big decisions together, so if you often argue over the little things, a joint mortgage might not be the best idea.

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, as well as talking with solicitors and signing documents and so on.

The applicants named 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 automatically inherit if the other person dies. You can claim an equal share in any sale profits. This is usually the option 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, so if parents are older, it might not be possible to take out a full-term mortgage, and 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 and also have a written plan in place for what happens if payments stop being made as agreed.

What about multigenerational families living together?

Getting a joint mortgage with a family member doesn’t always have to mean lending money from afar – you could also consider getting a joint mortgage and living in the property together. Multigenerational living is on the rise, mostly with adult children still living with parents, but also with parents selling their homes to move in with their adult children. In 2019 the Office for National Statistics released data that showed multi-family households (consisting of two or more families) were the fastest growing household type over the previous two decades.

The benefits of multigenerational living include being able to afford a bigger home together, sharing childcare responsibilities, and caring for older relatives. This way of life might not be for all families though, and arguments about shared space, responsibilities and long-term ownership are best addressed upfront before committing to a joint mortgage of this sort.

How to raise the funds for a joint mortgage

If you’ve decided that a joint mortgage is the best way forward to buy a house with your child, then your next step is to decide how to fund your purchase. If you don’t have the savings lined up and ready to go, you could consider the following options to raise the equity you need:

  • Personal loan: Even if you’re retired, you can take out a loan using your home as security, or you can look at unsecured loans, as long as your income is enough to make the repayments.
  • Remortgaging: You could rearrange your existing mortgage with a current or different provider to give you access to the equity you’ve built up in your home over the years.
  • Retirement interest-only mortgage: This may be an easier option to get if you’re 55 or over. You only have to prove you can afford to pay the monthly interest repayments, and then the rest of the loan is paid off when you die.
  • Home reversion plan: You could use this form of equity release to sell all or part of your property to a provider and use the cash you free up to fund 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. 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 and the cash is released either in a lump sum or regular instalments. 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, usually through the sale of your home.

Equity release will reduce the value of your estate so it's important to get professional advice if you're considering this option.

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 – a FREE advice, no-obligation, no-pressure service dedicated to finding out if equity release is right for you.

Find out more from the specialist Saga Equity Release team

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The survey data is based on research conducted by Opinium in April 2022 of 2,000 respondents aged over 50 with children over the age of 18.

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