Thanks to rising house prices and the best mortgage deals are being offered to those who can make large deposits, getting a foot on the property ladder can be very difficult for first-time home buyers with a limited income.
Thankfully, help is available. As well as the government’s Help To Buy schemes which are open to first-time buyers, mortgage providers have introduced joint parent mortgages.
Yes, you can get a joint mortgage with your parents and in fact, many people do.
If you would like to get a joint mortgage with the help of your parents, it might be possible for you to do so. To learn more, check out our guide below, and then get in touch with us if you have any further questions.
Getting a joint mortgage with parents to buy your first home
If you can afford to pay the mortgage deposit and have the means to make your monthly mortgage repayments on time without the help of your parents, you don’t necessarily need a joint mortgage.
But if you do need assistance getting on the property ladder, a joint mortgage with a family member is one option open to you. You can get a joint mortgage with any family member although parents are usually the first port of call for any struggling home buyer.
How does a joint mortgage with parents work?
With a joint mortgage, you can borrow money with the help of one or both of your parents.
If you decide to go down this mortgage route, both you and your parent(s) will be named on the joint mortgage application. The mortgage lender will assess each person’s eligibility and affordability. And you will all be jointly liable for paying the mortgage debt by making the monthly repayments on time.
If the lender is satisfied that everybody on the application form meets their lending criteria, you are almost guaranteed mortgage approval.
However, early on during the application process, you need to decide how the legal ownership of your property will be defined. It’s worth seeking expert advice from a solicitor before making your decision. Your choices are:
- Joint tenants (aka joint tenancy)
- Tenants in common
If you choose this option, both you and your parents will own the property equally. Should a joint tenant die before the mortgage ends, their share would pass to the other owner(s). Should the property be sold, each person on the joint mortgage would get a share of the profits.
Tenants in common
With this option, each person would own a share of the property but this doesn’t have to be an equal share. Each person can decide what to do with their share when they are making a will. It can go to one of the other property owners or it could go to somebody else entirely.
Do all mortgage lenders offer joint mortgages?
Not all mortgage lenders offer joint mortgages with parents but there are some that do. In some cases, you might need to turn to a specialist lender as some high street lenders are cautious about joint mortgages with parents.
At YesCanDo Money, we can point you in the direction of those lenders who are more likely to accept a mortgage application from you and your parents. Speak to a member of our team if you would like to learn more.
Is getting a mortgage with your parents a good idea?
If you need help getting onto the housing ladder, getting a mortgage together can be a good idea. It’s important to make your parents away of their responsibilities, however, as this isn’t something they should consider lightly. If you were to default on one of your mortgage payments, for example, your parents would have to cover the shortfall.
But if they or any of your other family members were happy to help with your property purchase, despite being liable for the monthly repayments, it is certainly an option to consider.
What are the disadvantages of having a joint mortgage with my parents?
One disadvantage is the family conflict that might take place should one person default on their share of the mortgage repayments. The other disadvantages are less personal but still worth knowing about.
Does a joint mortgage affect your credit score? Unfortunately, the answer is yes! When you take out a joint mortgage with another person, your credit reports are linked until the loan has been repaid in full. If one of you has a bad credit score, this could affect future loan applications for anybody on the mortgage agreement. You should make sure your parents are aware of these financial risks before taking out a joint mortgage together.
First-time home buyers in England, Wales, and Northern Ireland are exempt from paying stamp duty on properties below £425,000. Assuming your parents aren’t also first-time buyers, you would miss out on this discount. If they are homeowners, you (or your parents) would have to pay the 3% second home surcharge on the standard stamp duty rate.
Furthermore, if you ever decided to sell your home, you would be required to pay capital gains tax if the property was classed as a second home for your parents. It is worth keeping all of these things in mind when you’re considering a joint mortgage.
Maximum age cap on mortgage terms
The majority of lenders refuse to give a mortgage to people over a certain age, as they have an upper age limit that caps out at the end of the mortgage term. The maximum age for getting a mortgage can be anywhere from 65 to 85, depending on the lender.
This can have an effect on your mortgage, as you may need to reduce the standard 25-year mortgage term if your parents are approaching retirement age at the time of your application. If you do need to reduce the duration of your mortgage, your monthly mortgage payments could be higher.
Lender income requirements
As part of their affordability criteria, many lenders have minimum income requirements. If your parents are near their expected retirement age, this could impact the joint application if the lender is concerned about the level of your parent’s retirement income.
The lender would also look at your own financial circumstances when taking the combined annual income into account and make sure monthly payments on a mortgage will be affordable.
What are the alternatives to getting a joint mortgage with my parents?
When looking to buy your own property, there are alternatives to applying for a mortgage jointly with your parents. These include:
Parents often help their children buy a home with a gifted deposit. As it’s a gift, there should be no obligation for the child to pay the money back. If your parents are able to help with your deposit funds in this way, they will need to confirm with the lender that the money is a gift and not a loan. Be aware that if your parents die within seven years of making this gift, it may be treated as part of their estate and you may need to pay inheritance tax.
Lending money from parents or a family member
You could also lend money from your parents if they are willing to pay the deposit for your new mortgage. You will need to let the mortgage provider know that this money is a loan even though you are unlikely to pay any interest on it, as it will be taken into account when calculating your affordability.
If your parents do ask you to pay interest on the loan, you should let them know that it may have an impact on their own finances, as they will have to pay income tax on the interest they receive.
With a guarantor mortgage, your parents act as a guarantor on your loan. They won’t have joint ownership of your home and they won’t be on the property deeds but they will need to make the repayments on your mortgage if you default on the loan. If you parents are homeowners this will lead to both complications for them when they next need to remortgage on their own home. Your parents could be also open to tax implications therefore guarantor mortgages really are a last resort option.
A guarantor mortgage is definitely worth investigating and getting advice on.
Family offset mortgages
With a family offset mortgage, your parent’s savings account offsets the balance owed on the loan. With this option, your LTV (loan to value) can be lowered and you can benefit from lower interest rates.
Learn more about offset mortgages here.
Speak to a mortgage broker at YesCanDo Money for more information about all of these options.
Its been our observation and experience over the years that it is essential that parents and children have a clear understanding from the outset of the implications to all parties involved in the mortgage. Our expert mortgage advisors are able to have meetings with all parties to explain the pro and cons to everyone that will be on the mortgage. – Stephen Roberts (Director)
Get In Touch with a expert first time buyer mortgage advisor
If you require mortgage advice about joint family mortgages, get in touch with our expert team.
Our specialist mortgage brokers will talk to you about the ins and outs of joint mortgages and will help you find a mortgage deal that is right for your personal set of circumstances. To improve your chances of getting a mortgage approved, we will also let you know what you and your parents need to do to pass the lender’s affordability checks.
We will also speak to you about the other options that are available as you may be able to get your own mortgage without the help of your parents.