People who want to get on the property ladder are looking to pool their resources to secure joint mortgages in order to purchase a property. It does not have to be a luxury property. A home they can call their own can seem unachievable these days, given the requirements for deposits of at least 25% of property value. Unless young people have millionaire daddies, or are lucky enough to win the lottery, they are unlikely to be able to afford property as a sole buyer, particularly in London.
As a result, mortgage products have been developed for groups of up to four people, such as friends, work colleagues and family members, in addition to the usual joint mortgages for couples.
In the past, for the purposes of the loan, the amount of lending would be based on two and half times the joint income of a couple. These days lenders tend to require a higher deposit and offer around four times the joint income of all parties.
Protecting the owners
It needs to be remembered that all borrowers are jointly and severally liable for the whole loan, regardless of whether all parties live in the property. The more people who are involved; the more complicated the situation can become over time. Life has a way of throwing curved balls; needs, relationships and commitments change. It is therefore important to obtain a written legal agreement prior to finalisation of purchase to protect all owners, for example from being forced out of the property against their will, of a loan raised being against the property, or shares being sold without agreement.
Since the amount each person contributes toward the deposit is likely to vary it is imperative that everyone understands and agrees the way the property is held by all parties.
There are two ways in which property can be legally held: Namely Joint Tenancy and Tenants in Common. Joint Tenants have equal shares in the property. Couples often hold their property in this way which means that when one of them dies, the remainder of the property reverts to them, despite what they may have stipulated in their will. Tenants in Common would have been a more prudent choice for an elderly married couple in this case as the survivor now holds all the marital assets, making it unlikely she or he will qualify for means tested state benefits or funding for care home costs. Tenants in Common means each party holds a specified share in the property, which may not be equal. This means each party can bequeath their share in their will.
Deed of Trust
The respective interests of all parties in the property can be recorded in the transfer Deed, which is sent to the land registry, but solicitors do recommend that this is legally recorded in a Deed of Trust.
In addition it is important to remember that for joint mortgagees who are unmarried couples, they do not have the same legal rights as if they were married. It is possible to make a Living Together Agreement, which stipulates what assets and debts are held by each person and what would happen regarding the mortgage and property in the event of separation.
Secure your mortgage
A mortgage is an ongoing liability, possibly for up to 30 years. It is important to consider how this debt will be paid, should any of the parties become ill or lose their jobs. It may be prudent to seek advice regarding income protection insurance for all parties, or the highest earner, which pays a benefit in the event of illness. Joint borrowers can also take out mortgage protection insurance and life insurance together. Payment protection insurance for their joint mortgage will pay the monthly payments in the event of redundancy or sickness. Life insurance is usually a mandatory requirement of the mortgage. The amount of life insurance taken out should equate to at least the borrowings, and should be written on joint lives. This means that if either policyholder were to die during the term of the policy the insurance would pay the sum assured.
Joint mortgages can provide the solution to affordable home ownership, but it is important to consider the long term implications when buying with others. Good legal and financial advice can help potential borrowers fully understand their obligations before entering into such agreements.
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By Luis Simmons and Rhodium, real estate search company and access provider to financial institutions to structure bespoke funding solutions for luxury properties in North and Central London.