Sharing a mortgage

How much can I borrow?

Traditionally, you can borrow two-and-a-half times joint incomes for a joint mortgage, or three times the biggest income plus one times the smaller income, though some lenders still offer more.

Most mortgage lenders will let a first time buyer buy with up to three other people, but many will only take into account the two highest incomes. There are a few exceptions to this rule - one or two mortgage lenders will consider up to four incomes, but they may insist that all buyers are graduates, for example. Lenders tend to use affordability rather than income multiples.

This is a slightly more sophisticated way of calculating how much is lent for joint mortgages as they take into account outgoings as well as income.

Potential pitfalls of joint mortgages

The most important thing to remember is that you may be best friends at the moment but nobody can predict the future. One person may, and probably will, decide to go their own way at some point, perhaps because they want to set up home with a partner. Or one of the group could lose their job. It's essential that you know exactly what will happen to your joint mortgage when one person decides to leave.

Each mortgage borrower is responsible for the whole mortgage, not just their bit, so if three people bought together and one left, the other two would be responsible for making repayments on the entire mortgage.

It is important to seek legal advice before sharing a mortgage and get a document drawn up, usually a trust deed, covering all potential situations. And you need to decide whether to own the property as Joint Tenants or Tenants in Common.

Joint tenants and tenants in common

Buying with a number of people could prove to be a good way of getting yourself on the ladder, but there are other things to consider if you go down this route. For example, how do you and your friends want to own the property? There are two types of ownership:

Tenants in Common

Tenants-in-common means you and your friends each have separate shares in the property, the size of which is determined by you. This means that the co-owners are regarded in law as having separate and distinct shares of the joint mortgage. Tenants in Common may give their shares away by will, they may even charge or mortgage them to a lender. On death of a Tenant in Common the share of the deceased co-owner is protected by the requirement that another trustee has to be appointed before the land or property can be sold. If the shares are complex a separate trust deed will usually be drawn up setting the shares of the joint mortgage out.

Joint Tenants

Joint tenants all have equal rights to the property. Should something happen to one of the joint tenants, their share goes to the remaining tenants as opposed to going to an appointed 'trustee' (as is the case with tenants-in-common). Normally the sole survivor of two Joint Tenants can sell the property and only needs a death certificate to prove their title or ownership. This is a very common and convenient form of ownership between husband and wife where the parties are content for the survivor to be the absolute owner. Where property is owned as Joint Tenants transfer of ownership on death is automatic. The ownership of the land held as Joint Tenants cannot be altered by a will. A will made by a Joint Tenant, which leaves the land to anyone other than another Joint Tenant would be ineffective.

Also bear in mind that if relationships become strained, your the finances could suffer. You should always seek legal advice if you are considering buying with friends or family. This means you can draw up a contract outlining what all parties involved should do in the case of something going wrong.

Joint ownership services

There is a service that can help first time buyers who want to get onto the housing ladder by buying with others. Firstrungnow.com offers a Joint Ownership Service that gives advice to groups buying together and helps individuals find potential property partners to invest with. It provides information and advice about joint ownership, such as legal and insurance requirements and if you're looking for someone to boost group numbers, or to find someone else with whom to buy, you can contact other people wanting to buy in the same town, you read profiles and choose who you want to get to know by email.

Pros and cons of joint mortgages

Advantages of sharing a mortgage:

Can afford to get onto the property ladder
Invest in your own property not a landlords
Move out of home - freedom from parents
Share cost of deposit
Share mortgage costs
Share household bills
Can be cheaper than renting
Property ladder doesn't get further and further away
It may be the only option

Disadvantages of sharing a mortgage:

You have to share some of your living space
Need to draw up trust deed and co-habitation agreement
Need to make sure you don't fall out (or you will have to call on those agreements)
Might need to draw up a will, take out additional insurance (life, mortgage payment protection)
Initial legal costs

If you're not sure if sharing a mortgage is right for you, Advice Now offers some essential legal advice on living together.

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