With property prices at an all-time high, first-time buyers may find it challenging to secure their dream home.
However, thanks to unique mortgage models, like a joint mortgage with parents, young individuals can fulfil their dreams of homeownership. Similar to a regular joint mortgage, this financing tool allows parents to assist their children in buying their first homes.
So, if you are considering a joint mortgage with your parents, this is just the guide for you as we uncover the process, eligibility, and everything in between. Keep reading…
Table of Contents
- A Quick Guide To Joint Mortgage With Parents
- How Do Joint Mortgages With Parents Work?
- Signing A Deed Of Trust
- How Can Parents Assist Their Children In Securing Their First Home?
- Things To Keep In Mind When Applying For Joint Mortgage With Parents
- Eligibility Criteria
- How To Get A Joint Mortgage With Parents/Family Members/Friends
A Quick Guide To Joint Mortgage With Parents
Opting for a joint mortgage with parents, also known as a parent-child joint mortgage, involves applying for a mortgage while including one or both of your parents in the application.
As such, all individuals named on the application undergo assessment for eligibility and credit history, sharing the responsibility for monthly payments.
In case one applicant misses a payment, the other party is expected to cover it.
Moreover, each applicant’s name appears on the title deeds, granting them some level of ownership over the property. The specific details of this joint ownership will be clearly mentioned in the mortgage agreement.
While certain mortgage lenders exercise caution with such arrangements, meeting eligibility criteria should result in a Decision in Principle being available if your application looks to initially meet the lenders criteria.
Notably, joint mortgages offer parents an opportunity to support their children in stepping onto the property ladder by enhancing their borrowing capacity.
This option is particularly beneficial for first-time buyers because lenders gain confidence that, in case of any issues, parents will intervene to prevent any repayment defaults and use their income towards affordability.
That said, lenders evaluate various aspects when considering parents in the application process, like their ages, potential costs of maintaining two households, existing monthly mortgage and interest payments, etc.
It’s also worth noting that you might not qualify for the first-time buyer Stamp Duty exemption. Further, you may have to pay Stamp Duty second home surcharge if your parents already own a property.
How Do Joint Mortgages With Parents Work?
Well, when you’re diving into a joint mortgage, you’ve got two ownership choices:
1. Joint Tenancy
This is the go-to option for couples. Basically, each borrower owns the entire property together.
2. Tenants In Common
Here, ownership is not divided equally but rather according to how the applicants fancy. Consequently, this option is often common with groups of friends or family members who are pitching in different amounts towards the deposit, mortgage repayments, and upkeep costs.
Keeping the two types of joint mortgages in mind, it is crucial to remain transparent about what suits you best, how you plan to handle payments, etc. Your solicitor can offer more insights on this.
Now, every lender will insist that at least one of you is named on the bank account used to make the mortgage repayment in most circumstances. That account will become the main one for mortgage repayments, and evidently payments must be made on time.
You may further use that account to settle household bills or save some cash for surprise repairs or DIY projects. As such, it is best to convey these details upfront so that everyone’s on the same page from the get-go.
Signing A Deed Of Trust
If you want to opt for “tenants in common,” consulting a solicitor is your best bet. They might suggest a deed of trust to lay out each owner’s duties and avoid any misunderstandings later on.
The deed usually includes the following:
- How disputes will be resolved
- An inventory of personal possessions
- Financial responsibilities of each party
- What share of the property each person owns
It is important to understand what any such arrangement will have on the mortgage lenders stance on providing the funds to you.
How Can Parents Assist Their Children In Securing Their First Home?
For starters, a joint mortgage involving parents and children is a specialist product. So, it may not be readily available at your usual bank due to specific lender criteria.
Conventional partnerships usually get accepted, but some lenders might be wary about joint mortgages that step outside the norm.
But fear not, as some lenders offer joint mortgages with parents, either as co-applicants or guarantors (although very rare) or on a joint borrower sole proprietor basis.
That said, joint mortgages with parents are quickly gaining popularity because of the following reasons:
- Deposit requirements kick off at 5%, but a larger deposit is key to reducing the lender’s risk and snagging competitive mortgage deals at reasonable rates.
- While interest rates are low, applicants often anticipate a more budget-friendly rate by combining their parents’ income.
- Lenders determine mortgage caps based on an income multiple, and a solo applicant may find themselves falling short of the sum needed to buy even a modest property.
- First-time buyers or young applicants lacking a strong credit history might face hurdles in regular mortgage approvals.
Things To Keep In Mind When Applying For Joint Mortgage With Parents
1. Age Matters
Mortgage lenders often set an upper age limit, usually tying it to when the mortgage wraps up.
For instance, your parents are currently 70, but if the lender’s policy says no to applicants hitting 95 at the mortgage end, it could result in rejection if the term was 25 years.
Trim the mortgage term, but brace yourself for higher monthly payments. All of these aspects need to be considered.
2. Tax Tangles
First-time buyers often look forward to a break on Stamp Duty, but with your parents in the scene, that exemption goes out the window if they are not first time buyers!
So, get ready to pay for Stamp Duty and a second home Stamp Duty (an extra 3% on the tab) if your parents already own a home.
Moreover, if you plan to sell your parent’s “second home,” you may have to pay Capital Gains Tax.
3. Credit Checks
When you team up for a joint mortgage, everyone’s credit history should be top-notch (unless you are approaching a specialist lender sought beforehand). Even if only one applicant has a bad credit score, the whole application will be affected.
In the worst-case scenario, if the new home is repossessed, the lender might grab the parental property to settle the debt on the jointly bought home or make claim to it. So potential future implications need to be considered when taking out any mortgage.
Firstly, each borrower has to meet the lender’s criteria. So, we recommend discussing your credit files with all the mortgage applicants. If one of you has a poor credit history, you may have to go beyond mainstream lenders and opt for specialist bad credit mortgage providers.
Keep an eye on the borrowing cap, too – some lenders may set a maximum amount to £250,000 or a specified multiple of income.
Moreover, according to some lenders, offset mortgages or open plan flexible mortgages (OPFMs) may be limited to just two borrowers where your requirements may be higher.
In most cases, although not all, everyone on the mortgage deal is expected to call the property their main residence.
How To Get A Joint Mortgage With Parents/Family Members/Friends
1. Chat With A Broker
Right off the bat, consult a broker. Unlike other scenarios, here this is your initial pit stop for most.
Why? Well, your short, medium, and long-term plans for this setup will shape the best way forward and the perfect deal for you.
And a mortgage broker, well-versed in handling these joint ventures, can guide you on the steps to boost your chances of approval. They might even advise you on how to snag insurance to cover unexpected expenses or help fine-tune your application.
2. Act On Their Suggestions
Your broker or advisor will share their pearls of wisdom – sort out credit file errors, get on the voters register, tighten up your budget, or maybe something else entirely.
Now, it’s your turn to act accordingly and wrap up those tasks before applying for a mortgage in order to get the best chance of approval.
3. Seal The Deal
With everything in shipshape and an agreement in principle in hand, it’s house-hunting time! So, find your dream house, fill out the mortgage application, and determine if you’ll be tenants in common or joint tenants.
When it comes to securing your first property, a joint mortgage with parents may be a practical solution for youngsters. Basically, it helps first-time buyers by combining incomes and navigating potential hurdles together.
However, if you prefer autonomy over your first home, we recommend alternatives like guarantor mortgages, joint borrower sole proprietor mortgages, gifted deposits, or parent loans.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
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