Getting A Joint Mortgage With Parents: A Comprehensive Guide

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As a first-time mortgage buyer, applying for a mortgage can be a bit challenging. Your credit score may not be that high, you might face various financial issues, or the type of house you want may not be available.

That said, it’s not all that hopeless. In fact, you have various options that might make it easy for you to secure a good deal, and a joint mortgage with parents is one of them.

If you’re interested, our experts can help you explore the ins and outs of that type of mortgage to determine if it’s suitable for you.

What Is A Joint Mortgage With Parents?

A joint mortgage with parents is when you apply for a mortgage and involve your parents for financial assistance. That means you’ll have to put their names in the application, and the mortgage provider will assess all of you for eligibility and credit history.

Of course, as legal contributors, your parents own part of the house. How much they own depends on the terms of the mortgage agreement.

Joint mortgages’ biggest selling point is that all individuals listed in the application are responsible for making the monthly payments. So, you’re not in this alone.

How Does A Joint Mortgage With Parents Work?

Before you apply for a joint mortgage with your parents, you want to decide what type of mortgage you want. You have two options:

  • Joint tenancy
  • Tenants in common

 

Both types have their pros and cons. So, talk to your parents and identify the one that works for both parties’ personal and financial circumstances.

Joint Tenancy

Joint tenancy is where all individuals listed in the mortgage application have equal ownership of the house. That means all tenants receive equal profit if you decide to sell the house at any point.

Additionally, if one tenant passes away, their share will automatically go to the other partners.

Tenants in Common

With tenants in common, you don’t necessarily have equal ownership of the house. You can agree on how to split the asset before applying. If one tenant passes away, their share doesn’t automatically go to the other tenants. They can decide who their asset passes to in their will. 

That option works best if each individual is contributing different amounts of money. If you choose to go with tenants in common, you might want to look into a deed of trust.

It’ll define the role of each contributor in this mortgage, helping you avoid future misunderstandings and disagreements.

These definitions include:

  • How much each tenant owns of the house.
  • How much each tenant should contribute to the mortgage.
  • The possessions of each contributor.

 

If you don’t know what type of joint mortgage to go with, you can contact us for consultation. We’ll take all the crucial/influential variables into consideration to determine the type that works best for you.

Does Everyone Listed In The Mortgage Have To Live In The Property?

Well, mortgage providers usually expect all contributors listed in the mortgage agreement to live in the house. It’s not obligatory, though. Tenants have the freedom to live wherever they want as long as the monthly instalments are paid on time.

What Are The Advantages Of A Joint Mortgage With Parents?

You can probably tell a joint mortgage with parents has numerous benefits to offer, but why choose it over other options? Here’s why:

Credit Boost

No, we don’t mean a joint mortgage can increase your credit. You see, if you’re a first-time buyer, you’ve possibly been living with your parents for a long time.

That means your credit score isn’t likely to be that good. Since credit is a key factor in this process, having a low score can hurt your approval chances. However, if your parents have a good credit score, it’ll be easier for you to get a good deal.

Financial Security

Look, you can do everything right: Secure a job that pays well, spend your money responsibly, and save as much as you can. You don’t know what the future holds, though.

There might come a time when you’ll have to spend the majority of your savings. In that case, your parents can help you pay the instalments until you save enough to get back on your feet.    

What Are The Disadvantages Of A Joint Mortgage With Parents?

Despite all the value and security they offer, joint mortgages with parents aren’t perfect. You want to know all the risks they hold before you apply for one so you can make an informed decision.

Joint Credit Assessment

As we previously established, mortgage providers will assess the financial status and credit history of all the tenants listed in the mortgage application. That means all your credit reports are connected until you pay the mortgage in full.

While that might be beneficial for you, it can hurt the other tenants. You see, if you have a low credit score, the other contributors will find it difficult to get approved for other financial endeavours in the future. 

That’s particularly bad, given that it takes people decades to pay off mortgages. So, they’ll stay in this financial slump for too long. That’s not even the worst part.

If you and your parents fail to pay the monthly instalment for the house, the lender can repossess one of your parents’ properties along with that house. That’s why you want to make sure you’re financially stable before applying for a joint mortgage with your parents.

Tax Exemption

You probably already know about Stamp Duty. It’s a property tax you have to pay when you buy a house in the UK. The amount of money you pay depends on the property’s price and type.

However, if it’s your first time buying a house in England, Wales, or Northern Ireland, you don’t have to pay that tax as long as the property is less than £425,000.

Sadly, those planning on applying for a joint mortgage with their parents don’t get that exemption unless their parents are first-time buyers, too. In fact, they’ll have to pay an extra 3% Stamp Duty on top of the original one.

Finally, if that home is your parents’ second home, and you decide to sell that house for profit in the future, you’ll have to pay Capital Gains Tax.

Age Cap

Yes, joint mortgages with parents have an age limit. Mortgage providers won’t give you a loan if your parents exceed a specific age.

That age depends on the lender. It could be as low as 65 years or as high as 85. Some can offer their services to 95-year-old homeowners.

The problem is that the cap applies to your parents’ age at the end of the mortgage’s term. So, if your father is 70, a lender might reject your 25-year-term application if they have an age cap of 95.

In that case, you might have to reduce the term to 20 or 15 years so you can pay the mortgage before the age cap hits. Unfortunately, that means your monthly payments will increase, which would make the process more demanding.

Income Requirements

You already know that mortgage providers have specific financial standards for their tenants to ensure they can repay the mortgage. These standards may be easy to meet if you have a full-time job, but they might be an issue for your parents.

With that type of mortgage, the parents are usually either retired or soon-to-be. That means they won’t be as financially stable, which is an issue for mortgage providers.

That said, you can work around this rule by reducing the mortgage term or having your parents prove that their income will be sufficient to repay the mortgage.

In this case, “income” doesn’t just refer to retirement money but any additional income coming from other sources/investments.

If your parents will retire during the mortgage term, the provider may ask for a few clarifications to determine whether they’ll be financially eligible or not. These clarifications include:

  • Current pension pot value
  • Expected retirement age
  • Expected retirement income

 

So, make sure to have all the paperwork ready before you apply to make the process easier.

Is a Joint Mortgage With Parents Suitable for You?

There isn’t a definitive answer to that question, as several variables factor into the equation. Overall, single-applicant mortgages tend to be less of a hassle than joint ones.

So, if you have a good job, we recommend taking the time to save for the deposit and applying on your own. However, if you need financial support, don’t hesitate to apply with your parents.

Even if you don’t want a joint mortgage, there are other alternatives that are just as effective. 

What Other Alternatives Can You Look Into?

As you can tell by now, a joint mortgage has its pros and cons. So, before you apply for one, you want to consider other alternatives. Who knows? Maybe they’ll accommodate your financial circumstances better.

Gifted Deposit

If you can pay the monthly instalments but can’t save for the deposit, you can always ask your parents for a gifted deposit through a bank transfer. That’s usually the most straightforward approach.

Keep in mind that a gifted deposit isn’t a loan. The word “gifted” implies that it doesn’t require repayment. Yes, your parents can’t ask you to return the money, and the lender might have them sign a waiver to confirm that.

Of course, you want to discuss your parents’ financial status before you take the money to ensure they can withstand making such a gesture. You don’t want to secure the deposit at the expense of putting your parents at financial risk, do you?

Borrowing the Money

Your parents might not be willing or financially capable of giving you the money without asking for payback. In that case, you can ask them to lend you the money for the deposit or any other mortgage-related expenses.

Yes, you won’t have to pay interest on that money. However, the lender will still consider this a loan and take its repayment terms into consideration during the affordability assessment.

Needless to say, the amount of money you borrow from your parents will affect how much the lender is willing to give you. So, try to borrow as little as you can.

Guarantor Mortgage

A guarantor mortgage is basically a joint mortgage, but your parents act as guarantors instead of contributors. That means they’d need to step in if you fail to pay the monthly instalments, but they don’t have ownership of the property.

With this type of mortgage, the lender uses your parents’ house as security. So, if you and your parents fail to cover the repayments, their house and the one you’re paying for might get repossessed.

Important note: Some lenders offer 100% LTV mortgages. That means you won’t have to pay for a deposit. However, these mortgages usually require a guarantor.

So, if you’re struggling to save for the deposit, that might be a viable option. Of course, that mortgage would have higher interest rates.

Family Offset Mortgages

A family offset mortgage is different from all the other alternatives on this list. It doesn’t help you secure a deposit or make your parents act as guarantors.

However, it can reduce the interest you pay on your mortgage by having your family offset their savings against that property.

So, if you’re after a £200,000 mortgage, and your parents put £70,000 in a savings account connected to your mortgage, you’ll only pay interest on the remaining £130,000.   

Can Parents Remortgage Their Property For A Joint Mortgage?  

Yes, they can. If your parents can’t gift or loan you the deposit, they can remortgage their own house. That would allow them to release equity in a few weeks, and they can use these funds to help you with your costs.

We recommend making this a last resort, though, as this approach is full of risks. For instance, your parents would have to repay the remortgage loan. If they fail, they’ll risk losing the house.     

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Emma Jones
Emma Jones
Emma began her career in Lloyds Banking Group, first in the unsecured & secured loans department at Halifax and later as a mortgage advisor at Lloyds. During 9 years in these roles and a further 2 years at Yorkshire Building Society, Emma was able to observe the impact of the recession, and how the banks let their customers down by denying loans and mortgages. Wanting to be a driving force for change, she stepped into a market advice role where she has been able to help clients when others couldn’t. Identifying a gap in the mortgage space, Emma went on to establish When the Bank Says No. As a keen property investor, she has been the focus of features in publications including The Sunday Times and This is Money. Emma’s greatest joy is overcoming the low expectations of their customers, many of whom have all but given up on getting a mortgage due. One thing Emma has learned through her own personal struggles is every client must be treated like a human and understood better by advisors and lenders in the industry. “We all have to navigate life events which can ultimately impact your financial status. It shouldn’t mean dreams of homeownership or business growth should have the breaks applied”. Emma and her team’s passion for helping people overcome the challenges they may face when applying for a mortgage have fuelled the success of When the Bank Says No.

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