3 Person Mortgage
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3 Person Mortgage
Carolyn Dunion talks to us about a three-person mortgage.
Can you have a three-person mortgage? Can three people be on the same mortgage?
Yes, you can. It depends a little bit on the lender – most are fine with it, but the odd one won’t be happy with that. For those that allow three people on the mortgage, it’s no problem.
You do have to match the ownership of the property with a three person mortgage if it’s not a Joint Borrower Sole Proprietor – as we’ve discussed on other podcasts. You would need all three people to be owners of the property and be named on the mortgage. It certainly can be done.
Can you get a mortgage with friends?
Yes, and it doesn’t really matter what your relationship is from the mortgage lender’s perspective, or for the ownership of the property. However, you do have to take into consideration the fact that you’ll have a legal relationship with whoever is on that mortgage.
You’ve got an asset, but you also have the liability of the property and the mortgage. So you’d want to be very clear about how long that relationship is going to be, and what each person’s expectations are.
It’s worth talking about what the exit plan is. You need to be very clear on that, but there’s certainly no reason why you couldn’t do it.
How do mortgages with three or more applicants work?
It works much the same as a sole person mortgage or a joint mortgage, in that you have that joint asset, joint liability, and you’re all equally responsible for it.
On a three-party mortgage, owners are known as ‘joint and severally’ liable. What that means is that if the mortgage payment wasn’t paid, the mortgage lender will come after anybody they can get their hands on.
You might have each agreed to pay a third of this mortgage, but they’ll pursue everybody for the full amount until they get what they need. You can’t split your liability in three. You’re all equally responsible for it – and that’s exactly how a joint mortgage works, as well.
What deposit do you need and how much can you borrow with three people on a mortgage?
You need a minimum of a 5% deposit, but the bigger the deposit, the better. To qualify for that 95% borrowing, everybody would have to pass the credit check at the right level. If you do, there’s no reason why you can’t buy it with a 5% deposit.
What documents do you need with three people on the same mortgage? Is it triple the documents?
Yes, absolutely. Triple trouble. It’s the same with any number of people on the mortgage – you need ID, proof of address, proof of income, bank statements and proof of deposit for all three.
How the deposit is made up will dictate what’s required. If everybody’s contributing equally to the deposit, we’ll need evidence of where that has come from for all three people. If one person is putting up the whole deposit, we would just need their deposit paperwork.
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Does it cost to add someone to a mortgage?
If you’re buying a property from scratch with three people, the costs aren’t necessarily different. But if somebody has a joint mortgage and wants to add another person onto that and the title deed, there will be a legal cost.
It does depend on the individual circumstances, but you can certainly apply to add somebody to a mortgage and therefore the title deed. You would want to get a quote for exactly how much that’s going to cost.
Do you pay stamp duty when adding someone to a mortgage?
Stamp duty is now known as Land and Buildings Transaction Tax. If you are buying from scratch, the taxation is exactly the same for one person, two people or three people. It’s not going to change because there’s three people attached to it.
If you’re adding somebody to an existing mortgage where the property is already in ownership, you must take legal advice on the tax situation – that will vary from person to person.
What are the pros and cons of having three people on a mortgage?
I’ve certainly seen this done by groups of friends who otherwise might not have been able to get onto the property ladder. They’ve agreed to do it for a period of time and it’s worked well. They’ve agreed to sell the property at a certain point, by which time they’re probably in a better position than if they had been renting.
That can work very well. It leverages the deposit funds that are available and also the income taken into consideration.
But the big disadvantage is that you have three people to navigate. We’ve all witnessed people divorcing and having to separate property and mortgages, which is a horrible situation – and not one you’re anticipating.
With three people in that transaction, there’s a greater risk of having different expectations or needs at any time. You need to look carefully at why you’re doing it and the things that could go wrong, before you buy.
If you feel that you can make it work and it suits your lifestyle and your own arrangements, I’ve certainly seen people do it to great effect.
Which lenders offer mortgages to groups of three people or more?
There are plenty. Specific lenders obviously change their criteria from time to time and it’s about getting the right advice at the point that you are considering applying for a mortgage like this. But you’re not going to be prohibitively restricted in your lender choice.
You’ve demonstrated how a mortgage broker can help. Is there anything else you’d like to add?
We act as a sounding board for our clients, and in this situation we can help by just raising some slightly uncomfortable questions. We’ll talk through what you are doing and why.
With three people on a mortgage that can be extra important – it’s useful to have somebody looking at the situation and just asking a few challenging questions. We check you are making the right decision and that all three parties fully understand the implications. That’s always a helpful step.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
