Joint mortgages for more than two people: what you need to know

It’s often a common (and life-changing) step for couples to find and buy their dream home, but what if you want to live with your friends?

Joint mortgages are usually offered to two people, although some banks also cater for up to four.

This may be an ideal solution for those who are struggling to get on the housing ladder due to high house prices, or for people who desire smaller and more manageable monthly repayments.

For HR operations manager George Nicholson, the biggest attraction was to not “give money away” via rent.

Luckily, his single friends (at the time) were in the same position, with enough money tucked away for a deposit.

He decided to move into a £350,000 house with school friends’ contract administrator Patrick Phynn and talent acquisition specialist David Lister.

“We know each other inside and out – it’s good to know who you’re living with quite well before committing,’ says Nicholson.

Overall, the experience has been swift as they took out a joint mortgage in June 2016, which took only around a week between searching via a mortgage broker and getting accepted in principle.

You can compare a range of different mortgages at loveMONEY. 

What you need to consider

If you’re tempted to buy a house with more than one other person, there’s a lot to consider.

Thankfully, there are no exclusions for anyone applying for a mortgage whether it’s one, two or even four applicants.

“Mortgage deals and rates will generally be exactly the same for four applicants as they would be for two,” says L&C associate director of communications David Hollingworth.

But he warns there may be limited choice for those who opt for a joint mortgage for more than two borrowers.

Barclays, Metro Bank, Virgin Money, Lloyds and Santander currently offer joint mortgages for up to four people.

Assessing affordability

One potential issue when applying for a mortgage designed for more than two people is that many only the top two incomes will be considered.

While this can be a good thing if one of the buyers has a particularly low salary, it can impact how much you can borrow.

For George and his friends, they could not use banks assessing two incomes as they wanted a loan that would consider all their salaries, which at the time (2016) was around £30,000 each.

Unfortunately, this left them with only one option – Principality Building Society – as this was the only joint mortgage provider that would assess all their salaries. 

This is not the only obstacle that can impact getting a mortgage. Individual credit scores can affect a group’s chances of success if one person is seen as being unable to pay their share of the mortgage.  

Fortunately, this was not an issue for George and his friends.

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Additional costs

Hollingworth says there should be no additional costs for a mortgage for four people.

But data from online mortgage broker Trussle suggests this might not be the case.

While initial mortgage payments are cheaper on average for a four-person mortgage, the rates and associated fees may be more expensive compared to a two-person mortgage.

Trussle says four first-time buyers may pay on average an extra £1,834 on a two-year fixed rate (compared to two people) based on a £250,000 property on an LTV of 80%.

“We always recommend assessing deals based on true cost, taking into account the associated fees and incentives, rather than just the interest rate,” says Dilpreet Bhagrath, customer experience manager at Trussle. 

Who pays if someone falls behind on mortgage payments?

All applicants are jointly liable, so if one person cannot pay their mortgage, the lender can legally demand payment from one – or all – of the other borrowers.

Nicholson, along with his housemates, recognised this potential issue before committing to a house together. They decided to write a contract stipulating the need for six months’ notice if anyone wants to sell up.

According to Nicholson, the housemates are currently considering whether to extend the mortgage for two years (currently around 5.5% from 2.64% after three years) or sell.

If they choose to stick around, they can re-mortgage at 1.96% for two years.

How to pass on property wealth

With a more traditional joint mortgage, it may be relatively simple to decide on how to pass down property to your loved ones.

But, if there are four people with a stake in the property, how would this work?

“This comes down to whether it is owned as joint tenants or tenants in common,” says Hollingworth.

If everyone is a joint tenant, ownership will pass onto the remaining owners if you die, while tenants in common can their leave their share of the property in their will.

“The latter would offer the ability to apportion shares of the property specifically, which could be of help where each buyer is putting in a different level of deposit,” comments Hollingworth.

He recommends legal advice for a group of friends hoping to buy a house as they can fully understand how it works and what to expect.

One of the key requirements for Nicholson and his friends as tenants in common included writing a will.

This was vital to establish whether their equal share of the house would be passed onto family or someone else.

A frank discussion was also necessary over what will happen if someone wants to move, and whether everyone would be forced to also sell.

This is currently the situation that Nicholson. He is currently considering his options, which includes possibly moving out.

"The others are not considering such a move at this stage as it makes more sense to extend the fixed rate mortgage to benefit from lower interest payments," comments Nicholson.

"I have a partner of two years whom I intend to build a future with, and to extend the fixed-rate mortgage for two years would be a commitment that needs to be considered against our needs as a couple."

Moving woes

“The likelihood is that we would sell as no-one has the funds available to buy out the principal, which would be in the region of £30,000.”

This is one of the dangers of getting a mortgage with anyone other than a partner as they may change their mind, and you may have to move a lot sooner than expected.

While this may not seem the end of the world, you may be forced to fork out a lot of money to get back on to the housing ladder – without the financial benefits of being a first-time buyer.

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