Home Loans
Getting a mortgage with friends
(presented by www.refinance-refinance.net - mortgage lenders)
By Benedict Rohan
Property prices for even the smallest apartments are beyond the reach
of many first time buyers nowadays. As a result, more and more people
are clubbing together with friends to share a mortgage and ownership of
a property. It’s a very good way to get on the property ladder, but as
such arrangements are never normally for life and one or more party
will inevitably want to sell eventually, the fine details should be
agreed clearly at the outset to avoid financial loss or the loss of
friendships.
The terms of a joint ownership mortgage are no different from a standard mortgage.
Regardless of the amount of deposit that each person pays or the salary
that they are earning, each shares equal liability for making the
mortgage repayments as far as the mortgage lender is concerned. So if
one person stops making repayments, the others will have to cover their
share to ensure that the full repayment amounts are paid. It’s up to
the joint owners to decide how they will divide the mortgage repayments
and ownership of the property between themselves.
Clearly, a legal agreement is the best way to ensure that everyone
understands their rights and responsibilities. This isn’t a sign of
mistrust, it’s simply a guarantee of protection for everyone. Although
not compulsory when taking out a joint mortgage with friends, it’s
certainly wise to do so. It won’t cost much to have one drafted up by a
solicitor. In fact so many people are taking out mortgages in this way
that some mortgage lenders provide specially tailored joint ownership
mortgages that include the drafting of a legal agreement.
Although the mortgage calculation is based on the sum of everyone’s
incomes combined, the mortgage lender doesn’t give people different
sizes of share in the mortgage or property. How much each person
contributes towards the repayments is up to the joint owners to decide.
It doesn’t have to be directly related to each person’s salary. This
should be set out in the written agreement.
It can become more complicated in circumstances where individuals have
put down different deposit amounts. However, again it’s up to the joint
owners to decide how they want to divide the shares in ownership and in
the mortgage.
If there’s only a small difference in the amount of deposits paid by
everyone, it can be evened out informally by those who paid a smaller
deposit making separate repayments to those who paid a larger deposit
until their contributions are balanced out.
Alternatively, you may decide that each person has their deposit amount
returned to them upon the sale of the property before the remaining
profit is shared equally among the joint owners. This tends to work
best in circumstances where the deposit amounts are low.
A common agreement for joint owners who have paid different deposit
amounts, particularly if they are a large sum, is for the share in the
amount to be taken into account when calculating the mortgage repayments,
so that those who put down smaller deposits have a bigger share of the
mortgage. When it comes to one owner leaving or the property being
sold, each person’s share in the profit is determined by calculating
their share of the current balance of the mortgage deducted from the
current market value of their share. This is fairer than taking an
equal share of the gain plus giving each person back their deposit
amount, as those who have been paying more towards the mortgage as a
result of their lower deposits will actually have been paying more
towards the capital than those who paid lower monthly amounts because
of their higher deposit.
There are several different ways in which a person’s circumstances may
change, thereby affecting their share of the mortgage and property. The
details of what will happen in such situations should be ironed out in
the legal agreement.
If for any reason one of the joint owners wants to leave, there are
various possible options:
rents out their room
rent out the room if they wish
person leaving
Insurance should be taken out as part of the legal agreement to cover
situations in which people are unable to continue paying their share of
the mortgage for a period of time, for example because of illness, injury,
redundancy or death. For illness or injury, insurance cover will normally
make their repayments for them for up to a year, and if the person is still
unable to make repayments after this, their share of the property will almost
certainly have to be sold.
If one of the joint owners dies, life insurance will provide a lump sum
to pay off the person’s share of the mortgage, and, depending on the
legal agreement drawn up, their share of the property will become part
of their estate. Writing a will is a sensible precaution for ensuring
that the deceased’s estate is distributed according to their wishes.
There are other things you’ll need to agree such as whether third
parties can live at the property, and if so, for how long. You’ll also
need to decide how you’ll split the fees for buying and selling the
property.
All of these issues should ideally be specified in the agreement, which
is best drafted by a solicitor to ensure that it’s fair and legally
binding and covers all eventualities. Joint ownership with friends
should be an enjoyable experience and you wouldn’t want to lose out on
friendships or money as a result of misunderstandings.
Biography:
Author: Benedict Rohan
Website: http://www.mortgagenation.co.uk
Benedict Rohan works as a freelance finance writer. Commercial Mortgage, Homeowner Loans, Remortgages
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