Mortgage Sharing

Mortgage Sharing e.g. with friends or family has become increasingly popular over recent years, with first-time buyers seeking alternative ways of getting on the property ladder. Mortgage sharing means that instead of you, or you and your partner getting a mortgage, you have a number of people on the deeds, which can ease the financial burden.

Lenders that allow friends to buy together usually allow a maximum of four people, however this can vary. Not only will different lenders allow different numbers of people to buy together, the amount you can borrow varies as well. Some may only consider the two highest incomes, whereas others could take all four into account.

Types of Shared Mortgages

There are three main types of shared mortgages, which are:

• Shared Ownership - part buy, part rent
• Joint mortgage with friends
• Joint mortgage with family members

Shared Ownership Mortgages

Shared Ownership Mortgage schemes are used for part buy, part rent schemes commonly known as shared ownership.

These type of mortgage schemes are popular with first-time buyers because they need to find a smaller deposit than on a regular mortgage.

When you buy a shared ownership property, you only buy a percentage stake in the property, usually 25 - 50% from a housing association. Although this can be affordable, as you only own a percentage of the property you will miss out on some of the equity growth if the housing market rises.  You can sometimes, however 'staircase' which means buying another portion of the property later on.

Many of these shared ownership schemes, which often offer properties at a discount, are open to all comers through housing associations. Shared ownership mortgage schemes vary form lender to lender, with some lending up to 100% loan to value on the purchased share.

Joint Mortgage With Friends

Joint Ownership means clubbing together to share the deposit, mortgage payments and bills. It can be a way onto the property ladder which may mean leapfrogging the first rung or enabling you to live in your favoured area.

Sharing with friends has the extra benefit that it can be a lot of fun and bring you closer together. One of the biggest benefits is the financial side. Sharing a property allows you to still be a homeowner but without having all the responsibility resting on your shoulders. You can still feel like the home is your own, but you are not taking on as much risk.

There are however a few points to bear in mind before taking on a joint mortgage with one or more friends:

• You will need to decide whether you and your co-owner(s) want to own the property: as tenants in common or; joint tennants.  Most friends take the tennants in common option as each party can dispose of his or her share, either whilst alive or through a will
• You first to decide on where you want to live. It may be that you feel passionately about one house, but your friend(s) is not so convinced about it or want to live somewhere else. There is going to have to be an element on compromise when it comes to sharing
• You will need to agree about what type of mortgage to take out. For example, one of you may earn more money and want to make higher repayments while you may not be earning very much and want to take an interest only option
• When it comes to decorating the house, unless you have the same taste then you could encounter problems as you will want to decorate it in your own style and might feel like the house is yours to do with as you please
• The biggest problem people who share face is when one of them wants to move out or sell their share of the property. Unless the other one can take on the mortgage payments by themselves then you may have to sell the house or find a tenant . It is important to discuss this before you sign a contract and decide what would happen if one of you wanted to do this
• You will need legal documents, including wills and life insurance, to protect your investment, which means additional costs

When it comes to sharing a mortgage, it comes down to who is involved, how well you know each other and what you want out of the equation. If you simply see it as a means to an end and feel comfortable and confident that you will get on with the other person sharing the mortgage then everything should be fine. It is not something that you should walk into blindfolded, as it is a big commitment, so you should be sure about yourself and the other person before you enter into any agreement.

Joint Mortgage With Family Members

Sharing with family has the extra benefit that there is probably more trust than buying with people you might not know too well.

They can also be useful either in conjunction with, or instead of guarantor mortgages (e.g. for graduates).  Parents could provide the deposit and a shared mortagge could be then taken out.  The graduate could then repay back the deposit to his/her parents over time as income increases.

Determining Ownership

A joint mortgage is offered on the basis that all borrowers are jointly and severally liable. However, while the lender will make the offer of mortgage on the basis of the joint incomes of all applicants, it is ultimately up to the borrowers as a group to determine how they divide the monthly repayments on their joint mortgage.

As long as all applicants are comfortable with the repayments, even if they have varying incomes they can agree to split repayments equally giving each of them a straightforward equal share in the mortgage.

Of course, the situation can be complicated where applicants have different deposit amounts. Even with different deposit amounts, it is possible to have equal ownership overall once the mortgage is taken into account. This is because the mortgage can be divided according to how the borrowers choose, and they can choose to divide the monthly mortgage payment so as to balance the differences in deposit over time.

Useful Links

>>> First Time Buyer Mortgages
>>> Guarantor Mortgages
>>> Government Schemes
>>> Mortgage Calculators
>>> Interest Only Mortgages
>>> Mortgage Blogs - News & Articles
>>> Debt Help & Advice