Joint Mortgage With Parents
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Joint Mortgage With Parents
Can I get a joint mortgage with my parents? How does this work?
Yes, you can, and there are two different types. You could have a straightforward joint mortgage with parents, just like a joint mortgage with a partner. You all own the property and are all part of the mortgage.
Alternatively, you can get Joint Borrower Sole Proprietor mortgages, which we’ve covered in previous podcasts. Those work slightly differently. For the purposes of this podcast, we’re working on the basis of a parent being part of the mortgage and also part of the property ownership.
Will I miss out on a First Time Buyer discount if I get a joint mortgage with my parents?
On the assumption that the parents are already homeowners, then yes, you would miss out on any First Time Buyer discount. However, there are not that many incentives for First Time Buyer mortgage-wise.
From time to time, there might be the occasional incentive, but I wouldn’t say these are enough to change your mind if this was the right way to go.
What deposit do you need for a joint mortgage with a parent? How much can I borrow for a joint mortgage with parents?
You’ll need a minimum of a 5% deposit, but both of you would have to qualify for 95% borrowing. As always, the more deposit, the better.
It does depend on your parent’s circumstances. If they’ve still got a mortgage, for example, you might need a larger deposit – possibly up to as much as 20%. In terms of borrowing, lenders will take into account your income and your parents’ income.
That’s helpful, because usually parents are at the top of their earning potential. The downside, of course, is that you will be limited in the length of your mortgage by your parents’ age.
That will potentially reduce the amount of borrowing, and more significantly dictate the size of the mortgage repayment. As it will be over a much shorter term, you might find the mortgage payments are higher than you would like.
What eligibility criteria do we need to meet for a joint mortgage with my parents?
It’s much the same as any joint mortgage. You need to pass the credit check and your affordability needs to stack up – your income versus credit commitments, dependents, et cetera. But that’s it. There’s nothing specifically different when it’s with your parent or parents.
Does a joint mortgage with parents have to be 50-50?
When there’s more than one party involved, everyone on a mortgage is ‘jointly and severally’ liable. That means that it is 100% each party’s responsibility to make sure that the mortgage is paid.
In the unfortunate event that the mortgage isn’t paid, the lender will go after whichever party they can get to the easiest to ask for full payment. If you’ve made an agreement with your parents to pay 50-50, the lender won’t respect that. They will want it paid in full by whoever they can get their hands on, basically.
In terms of the ownership and how any potential equity might be split, the norm is 50-50. If you want something different, you would need to take a solicitor’s advice, and also check that the mortgage lender is comfortable with any split in the property title. It won’t change the joint and severally liable status of your mortgage.
How will my parents’ age impact our ability to get a joint mortgage? Is there a maximum age?
There is, yes. It will vary by lender and also by circumstance. If you’re looking to push the term beyond retirement, that parent would have to show evidence that they’re paying into a pension.
Depending on how close they are to their intended retirement age, they might have to produce projections of what their pension might pay out. Generally speaking, most lenders will not go beyond 80. Some only go to age 70.
Joint mortgages with parents therefore tend to suit younger parents, as it makes things slightly easier. But it is possible to get it to an age that you wouldn’t necessarily expect, like 80, depending on the lender.
Can my parents pay the full deposit and as all be named on a joint mortgage? Would this be a gifted deposit?
It’s not a gifted deposit because your parent would own the property alongside you. But that’s absolutely fine and there’s no reason why they can’t contribute the full deposit.
Legally, that deposit effectively becomes jointly owned when you own the property. If there is any agreement for you to repay the parent’s deposit before any equity is split, that’s something to speak to your solicitor about. It wouldn’t automatically happen.
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What happens if you have a joint mortgage with parents and they die?
It’s a very savvy question – and none of us want to have that conversation. But honestly, anybody in a joint mortgage has to consider this. It’s obviously going to be more pertinent with parents as they are older.
It’s very important to have appropriate life insurance to cover the mortgage. If something happens to either the parent – or anybody you’re in a joint mortgage with – that policy could pay off the mortgage.
If you don’t have that, the surviving party would have to justify the mortgage in their own name. They may not have sufficient income, which is very common, and would mean the mortgage company forces the sale of the property to get the mortgage repaid.
They can be quite cold – they want it done quite promptly. The only way to really avoid that situation is to have adequate life insurance in place, and to be explicit about who is entitled to what.
You should also mirror that within a will. If a parent is on a joint mortgage, that property would not automatically go to the child they have the mortgage with. If there’s multiple siblings, for example, the parent would need to be expressly clear about what would happen.
The best advice is to have that conversation and explore what would happen. And it’s not just the parent that can die. Anybody in a joint mortgage needs to consider what would happen in that unfortunate event.
People assume that the right thing will happen, but it’s not always the case. You need to be clear about your wishes and set them out legally.
Is getting a joint mortgage with my parents a good idea? What are the advantages and disadvantages?
For some people it works and some others it doesn’t. The advantage is that you can probably get a mortgage, even if you don’t have much income. Your parents could boost that for you massively.
They might be prepared to do it, because they want to contribute a deposit fund while retaining ownership. They might see it as an investment. It might suit your living arrangements – perhaps you currently live with a parent and this is a fair reflection of how you want the ownership to be.
The main disadvantage is usually the age difference. That brings with it different challenges, depending on how old each party is. Again, this is true for everybody in a joint ownership situation – you need to consider your exit strategy and whether how you’ve set it up will work for both of you.
How do you apply for a joint mortgage with parents? What’s the process?
It’s exactly the same as applying for any joint mortgage. We need all the usual paperwork: ID, proof of address, proof of income, bank statements, etc. Your broker will take you through the process step by step.
How can a mortgage advisor help in this situation?
A mortgage advisor can always be useful and that’s certainly the case here. It’s worth having a conversation with an advisor to check that this scenario is really the best way to achieve your goals. There might be other ways that could work better.
It’s also useful to have somebody asking challenging questions around the exit strategy and future plans. We explain clearly what your liabilities are with this, so you can be sure you’re comfortable with everything.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
