Are mates mortgages an option?

Mates Mortgages has become a commonly used phrase particularly when the previous Housing Minister referred to them as a possible solution to some of the woes of aspiring first time buyers.

The term sprang from the growing trend of borrowers clubbing together to pool their resources, both in terms of pulling together a larger deposit and generating more borrowing power with two (or more) incomes.

There’s nothing difficult about having more borrowers on a mortgage as most lenders will allow up to four applicants to be joint on the mortgage.  However the majority will only take the two biggest incomes into account when deciding how much they will lend.

However it’s clearly a big commitment to be purchasing a property with a friend and the implications need to be very clearly understood.  It can be difficult enough living in harmony with friends let alone sharing a big financial commitment.

A mortgage lender will always insist that borrowers are ‘jointly and severally’ liable which means that it can chase any one of them for full payment if necessary.  So if one stops paying their half of the mortgage payment the lender can still seek payment from the other borrower in full.

They may want to consider how the property ownership is structured as well.  The default is usually for a property to be owned as joint tenants but setting it up as tenants in common may be more appropriate for friends.  This allows the shares to be split between the owners and importantly for that share to pass according to their will in the event of death rather than by survivorship.  In other words you can leave your share to family rather than it simply pass to the other owner.

It makes sense to think about whether everyone has a similar plan and timeline in mind.  Even then things can change, for example if one of the group wants to move in with a partner or a job change necessitates a move.  It therefore makes sense to consider what would happen if one of the owners wanted to move on.  It could pay to take independent legal advice to understand the implications and to formalise things, in order to avoid problems further down the line.

Most borrowers will prefer to go it alone if they possibly can rather than ganging up with friends.  That means that they face the two challenges in the current market in how to amass a deposit and/or whether they can manage to borrow enough.

 

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