Menu
When you do the maths, buying a property on your own can seem like an unattainable goal. You want to have the potential to build equity and invest for your future but, when you look at what you can borrow on your salary alone, it’s simply not enough to secure the property you want.
It might not be an option to pool resources with a romantic partner, or with a parent or close family member. There could be another way – many individuals want to buy a home with a trusted friend and mortgage lenders recognise this need.
In this article, our knowledgeable team of experienced independent financial advisers at PIL Southampton answers questions about sharing a mortgage with a friend.
Yes, you can. We advise that you carefully consider all the implications, and that you have a very honest conversation with your friend about your financial situation and future plans. It is also prudent to take legal advice and get a legal agreement drawn up outlining both your obligations.
Taking out a mortgage with a friend doesn’t mean you need to share property ownership 50/50. You can decide who owns what proportion of the property based on the amount of deposit you are each contributing, and how much of the monthly repayments you are each agreeing to make.
The application process is generally the same as with any other standard mortgage application, and each party will need to meet the lender’s requirements and policies.
A joint mortgage with friends increases the amount of money you can borrow, as the lender will take both your salaries into account when it is calculating how much it will lend to you. Up to four individuals can be named on the mortgage agreement, though it’s typical for lenders to base their offer on the two highest salaries.
Each person named on the mortgage is responsible for paying the fees and monthly repayments – if one of you defaults on your share, the other/s will need to pay your share, or your home may be at risk of repossession.
Your finances become linked with the friend/s you take a mortgage out with. Your choices affect each other, for example if you default on another loan, your friend’s credit rating could be adversely affected, and vice versa.
There is no specific ‘friends mortgage’ product. Friends can take out a ‘joint mortgage’, just like a married or unmarried couple, a couple in a civil partnership, a business partner, family member or a close relative.
Sharing a mortgage with anyone is a serious commitment. You will want to be as sure as you can be that you can trust each other to uphold your financial commitment to the mortgage. You will also need to make sure that you are going to be compatible living companions. It is a good idea to live with each other for at least six months before applying for a mortgage.
Consider the future and what might happen if your circumstances change and one of you wants to opt out of your mortgage agreement – if they can no longer pay their share of the mortgage or if they’d like to move in with a romantic partner, for example. Drawing up a legal agreement outlining what you would do in this situation is recommended.
Just like with any mortgage application, anyone named on a mortgage agreement will have to provide various documentation confirming your identity, proof of employment and income, with bank statements detailing assets and liabilities. You will also need to provide any other loan agreements you have in your name.
You may also need to give your lender information about the property you are looking to buy, like a property appraisal or sales contract.
Pooling your resources with a trusted friend can be an excellent way to get into the property market. Applying for a mortgage with two salaries will significantly increase the amount you can borrow, which will widen the range of properties you are able to consider buying.
And, if you are both contributing to a deposit, this higher amount could give you access to lower interest rates, as should having a higher combined income.
Sharing a home with a friend can also ease the cost-of-living burden, as you’re not only pooling your resources to buy a home, you will also hopefully be sharing household bills and maintenance costs.
Buying a home together is a big financial commitment, so it is essential that you are both open and honest about your financial circumstances and your attitude to money.
Any mortgage lender will run credit checks on all mortgage applicants. You can improve your chances of getting a good credit score by taking steps to improve your credit score before you apply for a mortgage. However strong one person’s credit score is, your mortgage application could be rejected if the other’s is poor.
Remember, once you take out a joint mortgage, your own credit score could be negatively impacted if your joint mortgage holder defaults on payments for this mortgage or any other loan during the mortgage term.
You and your friend first need to decide where you want to live, and the likely cost of your desired property in that area. Then, you need to go over your finances, your income, savings and outgoings, to work out what deposit you can raise and how much you can afford to repay.
Sharing a mortgage doesn’t necessarily mean you are splitting home ownership down the middle. Before you make a financial commitment with a joint mortgage, decide together what percentage you can each contribute to the deposit and the monthly repayments. This will determine each individual’s share of the property, which you should have drawn up as a legal agreement. This agreement will give you security regarding how funds are divided when you come to sell the property.
A ’tenants in common’ mortgage is a popular option for two or more individuals to own specified shares in a property that don’t have to be equal.
Taking out a joint mortgage with a friend isn’t just about the money. You will be living together too, so you will want to take non-financial considerations into account as well.
You might get on well when you’re out together and catching up, or even away on holiday for a week, but are you going to be compatible when you are living together full time? Do your lifestyles align? Do you keep the same kind of hours and have the same standards regarding cleanliness and tidiness? How will one of you feel if the other always has friends over, or has a romantic partner who spends a lot of time at your shared home?
Before you buy a home together, you must discuss and agree on what you’ll do if one of you can’t afford to share the mortgage anymore, decides to buy with someone else, relocates for a job, or simply wants out.
The legal agreement you get drawn up should include a clear exit plan for when the time comes – the process for selling the property, giving the other person a right of first refusal, and how you’re going to decide on the value of the property if one of you wants to buy the other out.
Buying a property is likely to be the biggest investment you will ever make, so you might want to consider taking out home and life insurance to give you extra protection if unforeseen circumstances arise, like death or incapacity.
Income protection insurance is also a policy worth considering, as it could help to provide a substitute income if you are unable to work for an extensive period due to illness or injury.
How much you and your friend can borrow with a joint mortgage will be based on all the standard mortgage application criteria like joint income and expenditure calculations, your credit rating and how much deposit you can raise.
Although up to four individuals can be named on a joint mortgage agreement, lenders usually only take the two highest incomes into account when they are calculating how much you can borrow.
Our qualified and experienced team of independent financial advisers is here to talk you through all your options when you are considering getting a mortgage with a friend. We keep up to date with the products available across the marketplace and, after listening carefully to your needs, and getting to know your circumstances, we will advise the best way forward for you.
You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.
Protection & Investment Ltd © 2023
Registered in England No 3757929
Protection & Investment Ltd is an Independent Financial Adviser which is authorised and regulated by the Financial Conduct Authority [Reg No 222993]
Details can be found on the FCA website www.fca.org.uk
Registered Office: Chandlers House, Ganders Business Park, Kingsley, Hampshire, GU35 9LU
Head Office – Tel: 01420 470 241 – Fax: 01420 478759
