First Time Buyer Joint Mortgage

What does being joint tenants or tenants in common mean?

Joint tenants are the norm for a family home. It’s where both parties or spouses co-own the property. Each co-owner owns the whole property and neither has a specific or definite share of the property amount.

With tenants in common, it’s slightly different. It’s a legal arrangement between two or more people in the property, where they own a percentage share. For example, Mr and Mrs get married and Mrs may put down the majority of the deposit – perhaps 80% of the deposit for the property.

Generally when people are married it tends to be joint tenants. Tenants in common are more popular when people are dating and buying a house together. If somebody puts in more of a percentage, their parents may be a little bit worried. Tenants in common allows you to have legal ownership based on that deposit percentage.

If anything were to happen, the person who put in a larger deposit would have a greater claim or stake over that property. It’s a sensible option for somebody quite young, in a relationship but not getting married.

It could also be two friends, for example, who want to buy a house and can’t afford to do it individually. It’s more cost effective for them to buy rather than rent. Again, one party may have a larger proportion of the deposit. Tenants in common is often used in that kind of scenario.

Can I get a mortgage with a guarantor?

Absolutely. There used to be adverts a few years ago for a ‘springboard’ mortgage and now this is becoming more and more common. Essentially, a guarantor can help if you have low income, poor credit or no deposit.

A guarantor is usually Mum or Dad. It’s normally family members or a friend who is a homeowner, whose property is used as security. The thing to be mindful of as a guarantor helping your child or a friend get into the property market, is that if they default or miss any mortgage payments, it could impact both of you. The applicant and guarantor could be at risk.

Many lenders want a family member to be a guarantor. That’s a more solid bet rather than a friend. If the friends fell out or somebody had a change in career and moved away, there’s more risk. With a family member, they’re there to support the buyer long term.

The guarantor needs to have healthy credit and will often need to have paid off their mortgage in full.

How much can you borrow as a First Time Buyer with a joint mortgage?

With two applicants you can borrow more. The mortgage size will depend on your credit commitments such as personal loans, credit cards, hire purchase. It’s about what’s left from your disposable income after you’ve paid your outgoings – that’s what a lender will use to calculate how much you can borrow.

Typically, a lender will give you a multiple of 4.5 times your income. If you earned £10,000 a year, then 4.5 times that income would be £45,000. If we had two applicants each earning £10,000, all of a sudden the borrowing ability would go from £45,000 to £90,000.

How much deposit do I need?

You could get away with a 5% deposit. But the lower the deposit, the higher the risk you become to the bank, and therefore the higher the interest rate.

Also, with a 5% deposit your credit has to be squeaky clean. It’s very difficult if you’ve had any adverse events – any defaults, CCJs or late payments.

You have to have consistency with credit, which means paying any finance on time every month. That’s the only thing the bank has to assess you on as a First Time Buyer.

If one of the parties has poor credit and the other one has a great credit score, the likelihood is that the mortgage will not be offered, or the lender will want you to put down a bigger deposit. So credit score massively will impact how much you can borrow.

What is a Joint Borrower Sole Proprietor mortgage?

A Joint Borrower Sole Proprietor can be a great option for the applicant and for the lender.
I typically see this within families where parents may have a property that’s unencumbered. They still have an income and have a healthy pension, and potentially could help their children get into the property market.

With Joint Borrower Sole Proprietor, the lender will look at the income from applicant A – the child, and applicant B – the parent. They would only take the income from applicant B to make the mortgage affordable – they wouldn’t go on the property deeds.

Give it a few years and the child can overpay the mortgage or they will potentially have a partner in the future. They could then take the mortgage over, and the parents could come off.

It’s a great proposition that really helps with the cost of living and rising property prices. If you’re fresh out of university on your first PAYE role, it’s very difficult to buy a home – especially depending on which part of the country you live in. It just gives you an option to potentially get on the property ladder.

Can you transfer a joint mortgage to one person?

There’s no reason why not. Essentially, the sole person would need to be able to financially afford the mortgage in their name.

If it’s a residential property, unless it’s affordable by the single applicant, the second person will not be able to come off the mortgage. They are legally obliged and bound into that mortgage contract – so they need to keep up with it.

But it’s generally easier if it was a Buy to Let property with a joint mortgage. Buy to Lets are assessed on the rental income as opposed to the individual’s income, so it’s easier to transfer to a single name.

Another scenario would be if you were moving the property to a limited company – that might be an option.

How do you calculate a First Time Buyer joint mortgage?

It’s relatively straightforward. Generally lenders will allow people to borrow up to about 4.5 times the income. We would look at the individuals’ gross income as opposed to net, so income before anything is deducted.

We do need to factor in any credit commitments such as credit cards, loans and hire purchase. There might be a student loan. Those expenses need to be taken off the gross income.

Lenders base affordability on both applicants’ incomes combined. There are some specialist products available only for First Time Buyers where lenders will go up to six times the income – but there are some specialist criteria around that. Typically, for example, the joint income needs to be at least £50,000 and on PAYE – so you can’t be self-employed.

These can be great products for somebody in their early 20s, who can get six times their income, when most lenders will give you a multiple of 4.5 or 4.7. They might really want a £500,000 home but standard borrowing only allows them to go up to £450,000. That higher multiple could open up that door to buy a forever house rather than a stepping stone.

Given the cost of stamp duty and everything, buying a long term home is very appealing. Typically, First Time Buyers will buy a smaller property and, as their relationship develops and they have children or family moving with them, they need a larger property and upsize.

But higher borrowing gives them the ability to to have that dream home initially rather than upsizing.

Can I get a joint mortgage as a First Time Buyer if I have bad credit?

Yes – you can get a mortgage with bad credit. Just be mindful that if your credit is bad, you would need to put down a larger deposit.

Typically it depends on the credit score. Generally, lenders may ignore issues worth less than £250 – including defaults and CCJs. Things like internet and phone bills can also be ignored.

But serious defaults and CCJs are quite common, and would mean you need to put down a larger deposit to make that mortgage work for you.

If you’re looking for mortgages, keep an eye on your credit score with one of the many companies out there. If you can, put all your credit commitments on direct debit so they are paid. Lots of people tell me that they pay manually every month, but if you forget or you’re on holiday, it’s not paid. That could impact your credit score.

With the increase in the base rate and mortgages, they could have paid 3.5% but have ended up paying 5%, which is quite significant when you’re borrowing over the long term.
How can a mortgage broker help me get a joint mortgage as a First Time Buyer?
Just having a broker talk you through the process is so helpful if you’ve never done it. It’s not straightforward and we can help you understand it all, including the jargon.

We hold your hand throughout. It’s your first time, you don’t know what’s going on. People ask you for money, you’ll have to pay fees. A broker will give you the right advice and guidance, so you can’t go too far wrong.

Some brokers charge fees, some don’t. But having that experience and knowledge can help you. You can be informed in terms of the decisions you make.

Some people may want to buy an initial residential home and then want to get into property investment or development finance. But it’s worthwhile having that conversation with a broker.

You can go and get a deal done yourself, such as a remortgage or product transfer, but it’s always good to take some advice. Have a chat – we’re not going to charge you a fee for that. Just make sure you’re doing the right thing for yourself, your partner and your family.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.