Joint mortgages: Could splitting a mortgage with your friends get you on the property ladder? 

It’s not the best time to buy for the first time. Mortgage rates have skyrocketed in the past six months and house prices remain stubbornly high.

Together, these conditions drive affordability to an all-time low. Relative to income, house prices are the most expensive for nearly 150 years, as the average home now costs nine times the median wage.

At the same time, the government’s flagship program for start-ups – Help to Buy – ended in the fall.

But there are still opportunities for those who need help buying their first home. One of these is taking out a joint mortgage, whereby a maximum of three people can buy a home together.

This is the most popular way for first-time buyers to finance their home. Halifax analysis shows that more than six in ten of the group opt for a joint mortgage.

Often used by couples, but it is increasingly used by friends or siblings who want to buy a house together.

We look at how the loan works, its advantages and disadvantages, and whether it can be a route for starters to climb the real estate ladder.

What is a joint mortgage and how does it work?

A joint mortgage works the same way as a normal home mortgage: you pay a down payment on the property and then borrow a loan on the remaining value.

The people on the mortgage can divide the down payment among themselves, so that less savings are needed per person. Monthly payments can be made together, and a lender determines how much you can borrow based on your joint income.

Similarly, if you want to update the mortgage, all holders must agree. The same applies if you switch to a new mortgage agreement or a different rate with the same lender, or if you change lenders all together.

There are two different types of joint mortgages, joint tenants and joint tenants.

Joint tenants all have equal rights in the home, split profits equally upon sale, and will inherit the property if a borrower dies – essentially acting as a single owner.

In a tenant common arrangement, borrowers have separate interests in the entire property, which can be split as they choose. It means that one person can make a larger down payment, for example, in exchange for a larger share of the value when sold.

When one of the owners dies, they can pass their ownership interest in their will to a beneficiary – rather than to the other tenants in common.

“You don’t need a special mortgage to be tenants in common,” says Nicholas Mendes, mortgage technical manager at John Charcoal. “You just need a normal mortgage and your lawyer will handle the property arrangements.”

The mortgage interest on joint mortgages is the same as on a sole proprietorship, so you will not be disadvantaged by buying together.

Who can get a joint mortgage?

In theory, anyone can take out a joint mortgage, as long as it meets the normal lending standards a lender demands, such as affordability and credit history.

You can usually get a mortgage with up to three other people. They can be friends, relatives or a partner, although lenders differ in what they allow.

There are also options within the products for different scenarios.

For example, a joint borrower, sole proprietor mortgage is shared between a child and parents. They will share responsibility for the refunds, but only you will own the property.

However, not all lenders offer this option, so it’s always worth speaking to a mortgage broker to find out which option works best for you and what deals are on the market.

Couples often opt for a co-tenant, where they can decide for themselves how they want to divide the monthly payments, often from one direct debit.

Friends or relatives may prefer to purchase as tenants in common, allowing greater flexibility in terms of both financing and ownership arrangements.

What are the benefits of a joint mortgage?

For starters, the most obvious benefit of buying with someone else is cost sharing. Collecting a down payment is one of the biggest hurdles faced by those trying to get up the property ladder and splitting it reduces the amount each buyer has to save.

Whether they are co-tenants or tenants in common, monthly mortgage payments will be reduced compared to owning alone, meaning they may be able to purchase a more expensive home.

For tenants in joint agreements, total ownership between co-owners adds up to 100 percent. This is different from co-tenants, where each co-owner owns 100 percent of the entire property.

The breakdown for tenants in common agreements can be any variation. For example, says Mendes, Cristina could own 50 percent, Dave could own 25 percent, and Ellie could own 25 percent — or they could each own a third at 33.33 percent.

What are the disadvantages of a joint mortgage?

Trusting your co-homeowners is critical as you take on the mortgage debt together. As a result, the disadvantage comes from the risk that another person cannot keep track of the payments.

Edward Checkley, managing director at mortgage advisor Advias: ‘Please note that all parties are responsible for the mortgage debt and if one cannot meet its obligations, the others will have to pay the full amount.’

If you decide you want to sell the property, you will need the consent of all owners to proceed. If they do not want to, the case can go to court. If one person wants to sell their share, they need their co-owners to buy them out, or find a buyer just for their share.

As a starter, you currently benefit from an exemption from stamp duty. First time buyers paying £300,000 or less for a property will not pay stamp duty and those paying between £300,000 and £500,000 will pay 5 per cent on the amount of the purchase price above £300,000.

Those buying a property over £500,000 will not be exempt.

However, if you take out a joint mortgage with someone who is not a starter, you will lose the tax credit and you will have to pay stamp duty on the full amounts.