Joint Mortgage With Friend

What happens if you have a joint mortgage with a friend and the other person dies?

This links to what we mentioned earlier about tenants in common. Obviously, you will talk to your solicitor and get it all set up. If the ownership is structured as tenants in common and someone passes away, their share of the property follows their Will. If they haven’t got a Will, the laws of intestacy apply, which usually means the share will go to their family members.

We’re not solicitors, so you need to get legal advice on that, but this is the typical route. You might then end up with your friend’s family member taking their share of the ownership. To finance it, that person either needs to get on board with the mortgage or you’ll need to buy them out of their share.

If you own the property as joint tenants, the other owner’s share would usually pass to yourself as the joint owner. Again, you would need legal advice on the details.

It’s crucial to get the right advice before you start, so you’re prepared for the unexpected. Even a standard joint mortgage for a couple involves planning for this – because things can go wrong.

There can be more legal complexities for friends, as usually a married couple are quite clear on what they want to happen. With a friend, there may be different views.

Obviously, we always speak to you about insurance. If you approach it the right way, that would give you an element of security. A joint protection policy would get you a payout to clear the debt requirement and remove concerns about the mortgage altogether.

Is getting a joint mortgage with a friend a good idea? What are the advantages and disadvantages?

It’s not up to us to decide what’s a good idea, but we can definitely go through what’s good and bad.

Generally speaking, you need two incomes to buy a property nowadays. It’s quite hard to do it on one. Perhaps you really want to get on the housing ladder and so does a friend who you get on really well with. If you’re more than happy to live together, great. You can use two people’s affordability and deposits to get on the housing ladder and start building that equity.

The downside as we’ve alluded to is the need for an ‘exit strategy’ – and a robust one at that, because things change. You might meet someone, it might not work out or you might hate living together. Decide now, while you’re still good friends, what happens if things go the other way. Plan the exact exit and how that’s going to work legally.

There could be other complexities. You might lose your first-time buyer status, for example, which in the past has had some quite big tax implications.

How do I apply for a joint mortgage with a friend? What’s the process?

Start by talking to an adviser like ourselves. We’ll do the assessment and make sure it’s viable for you. You need to know that the type of property you’re looking to buy is within reach, and that lenders will be comfortable with the affordability.

We would then help you through the process – explaining the documents required and actually applying to a lender for you. So contact an adviser, make sure it’s all viable and then go from there.

How can a mortgage broker help here? Any final thoughts?

A good adviser would highlight the concerns and challenges around buying with a friend. I’d be quick to point you towards independent legal advice to work out the potential ramifications. You need to make sure you’re happy with that side before anything else.

There are really good advantages to buying with a friend, but if it goes wrong, it could get quite tricky. We’ll give you a reality check and make sure you understand the other side to this, to make sure you’re doing the right thing for each of you individually.

Key Takeaways:

• When establishing ownership, you must legally decide between ‘tenants in common’ (allowing different ownership shares and passing shares to an estate upon death) or ‘joint tenants’ (where each person has equal rights and the share passes to the surviving owner).
• Lenders treat the mortgage assessment the same as for a couple, calculating affordability based on joint income and liabilities, and holding both friends fully liable for the entire monthly payment regardless of how you split ownership internally.
• A robust exit strategy is essential to plan for future changes like a personal relationship starting or the potential loss of a first-time buyer status, which can have tax implications.
• Selling the property requires permission from both parties, and if one person wants to sell their share, the other can buy them out, but the lender must agree to remove the person from liability.
• It is critical to speak to a mortgage broker for viability as well as seek independent legal advice before committing to the mortgage to ensure you understand the complex legal ramifications of co-owning a property with a friend.
  
  

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.

NOT ALL BUY TO LET MORTGAGES ARE REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.