Should you say ‘I DO’ to a joint mortgage?
Buying a house together is one of the most significant financial decisions you can make with another person. Whether that individual is your spouse, parent, friend, or child, there are plenty of reasons to invest in a home together. Before taking the plunge, it is important to be on the same page as the other person and be aware of the financial and legal implications of owning a property and holding a joint mortgage.
Should you come to dissolve the partnership and want to remove an individual from the mortgage or house deeds, you could run into difficulties as a result of legal red tape.
The safest option is to be realistic about your decision and equip yourself with plenty of knowledge surrounding the legal and financial implications of your purchase. In this article, we aim to arm you with some of that knowledge. We’ll dive into what a joint mortgage is, what your responsibilities are, and how you would go about removing a name from a joint mortgage, should the circumstances ever call for it.
What is a joint mortgage?
In the UK, up to three people can invest in a property together using a joint mortgage. Like a regular mortgage, this financial product is used to invest in property. You’ll pay a deposit and use the mortgage on the remaining value of the property.
The core benefit of a joint mortgage is that you can borrow more money as the affordability criteria are based on both sets of income rather than a sole income. If you are looking to invest in a large family home, being in a long-term relationship with a significant deposit saved will certainly boost your chances. Alternatively, there are plenty of reasons to take out a joint mortgage with another party. Whether you are planning on investing in property with a business partner or you have friends and family who want to help you with the cost of owning a home, they can be included in the property loan.
Joint Tenants vs Tenants In Common
One of the core factors to be aware of when owning a property with another individual is how ownership of the property is spread between parties. Buyers who contribute different amounts to the monthly repayments or initial deposit may want their share of the property highlighted within the deeds of the property. Within your property deeds, the split of shares will be defined as either Joint Tenants or Tenants in Common.
Joint tenants refer to the agreement that all parties who own the property have equal rights to it. This type of agreement is typically made between couples who agree to split the property. Upon the sale of the property, any profits would be divided equally.
Tenants in common are the alternative term that reflects joint ownership. Property owners who are tenants in common may own different proportions of the property. A deed of trust can be drawn up by a solicitor and will document the percentage of ownership held by each individual. Commonly this is used when friends or family have made an investment in your home.
Can you transfer a joint mortgage to one person?
Certain circumstances may cause a dissolution of the partnership between owners of a property. Common reasons often include divorce, separation, or a transfer of equity. If the full balance of the mortgage is yet to be paid, the loan will need to be transferred to the remaining individual.
If you intend on taking on a joint mortgage by yourself, you will need to be able to prove that you can afford the monthly repayments by yourself. When this is not achievable, it may be required to sell the property and split the equity in accordance with the deed of trust.
If you are able to afford the payments, the process to remove a name from the mortgage is fairly straightforward but it may require consultation with a solicitor to ensure the process is completed without complication.
How to remove a name from a joint mortgage
The process of adding or removing a name from a joint mortgage is known as a ‘transfer of equity.’ This is because the amount of the property legally owned is transferred to a different number of owners.
To complete this process, there are two steps involved that require attention to detail. Firstly, your solicitor will need to complete the transfer documentation which will explain the new terms of the mortgage. If all parties agree to this agreement, this component is often simple to complete. However, if there is tension between separating partners, legal obstacles could appear, creating higher fees and a much longer timeline. When both parties can agree on an outcome, the situation is far more manageable and cost-friendly.
You will need to inform your lender of your intention to remove an individual from the mortgage. This will require them to start a process similar to remortgaging. They will calculate whether the remaining individual(s) are able to meet the lending requirements and affordability criteria. During this process, you may need to adjust the terms of your mortgage to make repayments more affordable.
Some property owners also find it helpful to assess the market for new mortgage deals at this stage. Different lenders offer lower rates, making the loan more manageable by yourself. It is essential to consider that if you do switch lenders, you will still be subject to their affordability assessments as a sole borrower, and you may even have to pay an early repayment fee to your previous lender.