Joint mortgages – How do they work?

What is a Joint Mortgage?  

A joint ownership mortgage is a mortgage you take out with someone else, whether that’s a partner, friend, family member, or business partner. Both parties will be jointly liable for the mortgage debt, so if one person can’t keep up with their share of the payments, the other will have to make up any shortfall.

Most joint mortgages are taken out with one other person, although some lenders will allow up to four people to take out a mortgage together, with each owner named on the property deeds. Remember that taking out a mortgage with someone else is a big long-term financial commitment, so it’s important to trust the person or people you’re buying with.

Joint Tenancy vs Tenants in Common  

When you take out a joint mortgage, it’s important to think about how you’ll structure your ownership of the property. When you fill out your mortgage application, you’ll be asked whether you’re applying as joint tenants or as tenants in common.

Each option has its strengths and weaknesses, so you’ll need to consider carefully which is most appropriate based on your individual circumstances. If you’re uncertain how to proceed, your solicitor will be able to advise you on the most suitable way to set the property ownership up, and of any potential tax liabilities that may arise. Below we explain how the different options work. 

What is a “joint tenancy” mortgage?

Taking out a joint tenant’s mortgage tends to be the most popular option if you’re buying a property with another person, because it means each of you will both have equal rights to the whole property. That means that when the property is sold, any profits are split among you equally.

Many people don’t realise however, that in the event of a death the property will automatically pass on to the other owner, and not to their family or any other beneficiary. This is the case even if you stated in your will that you wanted to leave your share of the property to someone other than the person you own it with. This route is therefore often taken by married couples or those in long-term relationships, who would want the property to transfer to their partner in the event of their death anyway.

What does tenants in common mean?

If you decide to own your property as tenants in common, this means that each party owns a specified share in the property. If one of you wishes to move on in future, your share can be sold, or if you die, it can be passed to a beneficiary named in your will.

The shares you own don’t have to be equal, so for example, one of you might own a 60% share in the property whilst the other person might one a 40% share. Your solicitor will draw up what is known as a ‘deed of trust’ which specifies what percentage of the property you each own.

Joint Mortgage Calculator: how much can we borrow?  

Taking out a joint mortgage can often boost the amount you’ll be able to borrow, particularly if you’re both on good incomes. Our joint mortgage calculator can help provide you with an idea of how much you might be able to borrow. All you need to do is put in both of your incomes, and the calculator will work out the likely amount lenders may be prepared to offer you.

If there are more than two of you applying for a joint ownership mortgage, contact L&C by telephone and we’ll be able to give you an estimate of how much you can borrow.

How are joint mortgages calculated?

When working out how much you can borrow, lenders will look at your combined incomes to help them decide what’s affordable for you. For example, they might offer you a mortgage equivalent to three times your combined income. So, if you are earning £30,000 a year, and the person you are buying with earns £40,000 a year, your combined salaries add up to £70,000. If the lender you are applying to bases their calculations on three times your salaries, you may be able to get a joint mortgage for £210,000.

However, lenders don’t just base their mortgage decisions on how much you earn. When assessing your joint mortgage application, they will also look at all your monthly outgoings, including any other debts you might have, and how much you spend on things like holidays or going out. They’ll also want to look at your credit reports to see whether you’ve both managed debts responsibly in the past.  

How many people can jointly own a property and how does this work?

You can own a property jointly with up to three other people, so in total four of you can be on the property’s deeds.

If you are buying a property with several others and at any point one of you decides they want to sell the property or apply for a loan against its value, all the owners must agree to this. All joint owners have a legal right to remain in the property unless a court order rules otherwise.

All the people on the joint mortgage will be jointly liable for mortgage payments, so if one or more decides not to pay their share, the others will have to cover their costs.  

Can I take out a joint mortgage with a friend (or friends)?  

You can take out a mortgage with just one friend or up to three if you want to. Doing so might enable you to get on the property ladder earlier than if you were buying alone as you’ll be able to pool your resources and put down a larger deposit. This could give you access to a wider range of mortgages at lower rates.

If a group of you are buying together, lenders will usually take the two highest incomes into consideration, which may mean you are able to borrow more than if you were buying on your own.

However, you must be certain that you trust the friend or friends you’re buying a property with, as you’ll be entering into a long-term financial commitment with them. Make sure you discuss what your future plans could be, and how you’ll handle things if one of you wants to sell up or move on in future.

Can I take out a joint mortgage with my parents?  

Many people choose to take out a joint mortgage with their parents, as soaring house prices in many areas of the country often make it impossible to buy alone.

Having a joint mortgage with your parents means their names will usually need to be included on the title deeds, and that they will be jointly liable for the mortgage payments, even if you plan to pay the mortgage in full yourself.

If your parents already own their own home, it also means this could lead to a capital gains tax (CGT) liability and incur the 3% second home stamp duty surcharge, which is on top of the normal stamp duty rates.

Some lenders offer mortgages on a Joint Borrower Sole Proprietor (JBSP) basis, which allows two incomes to be used, but only put’s the child’s name on the property’s title deeds, thereby avoiding the stamp duty surcharge. Currently only a handful of lenders offer these however.

Another option is for parents to act as guarantors, so they can provide security for their children without having to be named on the mortgage or the title deeds. Seek advice on the best option to suit your needs.

Whose credit score is used when applying for a joint mortgage?  

When you apply for a mortgage jointly, lenders will take both of your credit scores into account when assessing whether or not to offer you a mortgage.

If one of you has a particularly high credit score, this can benefit the other person, especially if their score is lower. It’s a good idea to get a copy of both of your credit reports before you apply for a mortgage so that you can check that there aren’t any errors.

Bear in mind too that there are things you can do to improve your score, such as making sure you are on the electoral roll, ensuring you always make monthly debt repayments on time and closing any credit accounts you no longer use.

Joint mortgages & separation/divorce  

If you’ve taken out a joint mortgage with a partner and you subsequently decide to separate or divorce, there are several different options available to you.

These include selling the property and both of you moving out, arranging for one of you to buy the other out, or not changing who owns the property but one of you moving out. Joint mortgage separation can be complicated, so it’s a good idea to seek professional advice if you’re splitting up. Find out more about divorce and mortgages.

How to get out of a joint mortgage  

Circumstances often change over time, so you may find that either you or the person you have a joint mortgage with wants to get out of it at some stage. This may be because you’re separating, or simply because one of you wants to move elsewhere;

Getting out of a joint mortgage isn’t as simple as just taking your name off the mortgage. There are lots of legal hoops to jump through and you’ll need to ensure you’re both happy from a financial perspective, so it’s a good idea to seek professional advice on the different options available to you.

Buying someone out of a joint mortgage

If you want to buy someone out of a joint mortgage, you will need to buy them out of the property and arrange for a ‘Notice of Correction’ to take their name off the mortgage.

You’ll need to have the property valued so that you can work out how much equity each of you has in the property. This can be complicated if, for example, one of you has paid more towards the mortgage, or has put down a bigger deposit.

It’s not always easy to afford to buy someone out, particularly if you don’t have significant savings available. Remortgaging may be one option, but you’ll need to be able to afford payments on your own.

Removing names from joint mortgages

If one of you wants to remove your name from the mortgage, your first step should be to talk to your existing lender, particularly if your current deal is subject to early repayment charges. You will then have to go through a legal process called ‘transfer of equity’, which involves the person leaving the mortgage transferring their rights and obligations as owner and mortgagor across to the person who is staying.

Always seek professional legal advice before you remove your or anyone else’s name from your mortgage and title deeds. Taking a name off and transferring equity from one party to another can be complicated and there may be significant costs involved. For example, the person staying on the mortgage may have to pay additional stamp duty when they take over the other person’s share.

Transferring a joint mortgage to one person

The process of moving from a joint mortgage to a sole name mortgage without increasing the amount you’ve borrowed is commonly known as a ‘transfer of equity’.

If one of you wants to take the mortgage on alone, you’ll need to speak to your lender. They are under no obligation to remove a name and will want to check that the mortgage is affordable for the person who is remaining on it.

If your existing lender won’t agree to transfer the mortgage to one person, another way to transfer the home and mortgage into a single rather than joint names is to remortgage to a new deal with a different lender.

If you want to add a name to a mortgage

You may want to add a name to your mortgage if, for example, you’ve got a partner who’s moving in with you. Before agreeing to this, your lender will carry out the standard income and credit checks on the person you want to add, to ensure that the mortgage will be affordable for everyone named.

Remember that when you add someone to your mortgage, that person’s credit history will become associated with your own. This can be positive if they have an excellent credit score but could affect your ability to get credit in the future if their history is poor.

If you’re not tied into your current deal, you may decide to remortgage to a new lender, including both your names on the new mortgage. Learn more about adding partners or spouses onto an existing mortgage.