First Time Buyer Joint Mortgage
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First Time Buyer Joint Mortgage
Diarmuid Phoenix explains how joint mortgages work for First Time Buyers.
How do joint mortgages for First Time Buyers work?
A joint mortgage allows two or more people to buy a property together. It’s a common choice for First Time Buyers, where couples and family members put income together to afford a more expensive home or property.
Lenders assess all the applicants’ incomes together, which can increase the total amount people are eligible to borrow. All parties concerned usually contribute to the deposit, but not always.
A bigger joint deposit can improve your mortgage deal, with lower interest rates and better terms. If all parties are First Time Buyers, you can potentially qualify for Stamp Duty relief, as well.
My partner is a First Time Buyer, but I’m not. What are my options?
If your partner’s a First Time Buyer, but you’re not, you can still buy a property together. You’ll face some key differences in terms of taxation, benefits, stamp duty and mortgage eligibility. The questions coming up will cover some of that.
Do both buyers have to be First Time Buyers? Do couples lose First Time Buyer status if one partner bought in the past?
No, both buyers don’t have to be First Time Buyers, but couples do lose First Time Buyer status if one partner has bought in the past. You’re not considered a First Time Buyer as a couple even if just one person has owned property before. That includes property anywhere in the world – not just in the UK.
What this means is you won’t qualify for First Time Buyer stamp duty relief or any special First Time Buyer mortgage deals if you’re applying jointly.
Do I have to pay stamp duty if my partner is a First Time Buyer, but I’m not?
You will likely have to pay stamp duty if you’re not a First Time Buyer, even if your partner is. Some couples might even decide that the First Time Buyer should purchase the property alone, in order to avoid paying the additional stamp duty.
There’s nothing necessarily wrong with this, but it could potentially reduce the affordability to purchase the property, as you will only be using one income rather than two.
Also, if you decide to add the non-First Time Buyer to the mortgage deeds at a later stage, stamp duty could potentially be payable then.
What does being Joint Tenants or Tenants in Common mean?
Joint Tenants and Tenants in Common are two different ways you can legally own a property with someone else. They have important implications, especially for couples, friends or family members buying together.
This applies to property in general, not necessarily mortgages, but Joint Tenancy is essentially equal ownership. You both own 100% of the property jointly together.
If one of the Joint Tenants dies, the other already owns 100% of the property – so there’s no change in ownership. They both own it, almost like a joint bank account.
With Tenants in Common, the ownership shares can be unequal, and could be defined based on what each person contributes. If, for example, one person put in a bigger deposit, they might own 60% or 70%, with 40% or 30% ownership on the other side. In a lot of cases, though, it’s 50-50.
The main difference is that you each own half each, or a proportion of each, rather than owning jointly. There’s no automatic inheritance with Tenants in Common. If one person dies, their share goes to whoever they name in their Will. There’s quite a big difference there.
Can I get a mortgage with a guarantor?
Yes, it’s possible to get a mortgage with a guarantor. A guarantor mortgage is designed to help people – particularly First Time Buyers, those with lower income or poor credit – to get on the property ladder with financial backing from somebody else. Often it’s a relative of theirs.
A parent, close family member or sometimes a friend can guarantee to cover the mortgage payments if the original borrower can’t.
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What is a Joint Borrower Sole Proprietor mortgage?
Joint Borrower Sole Proprietor is a type of mortgage where more than one person is on the mortgage, but only one person owns the property and is on the title deeds.
Similar to guarantor mortgages, this can help First Time Buyers who can’t afford a property on their own. They need help from a family member. It’s usually parents who step in, but sometimes it’s brothers or sisters. They tend to have their own properties already. They help achieve the borrowing levels that the buyer is looking for.
The drawback is that they may need to take a shorter term. If it’s a parent, for example, they are going to be a lot older, and the maximum term on a mortgage is always related to the oldest person. A shorter mortgage usually means higher monthly payments. However, this is still a possible option to explore.
How much can I borrow as a First Time Buyer with a joint mortgage? How do you calculate a First Time Buyer joint mortgage?
How much you can borrow will depend on the situation, which is the same as any other mortgages. To calculate a joint First Time Buyers’ mortgage, lenders look at the combination of your incomes, outgoings, credit history and deposit. They’ll assess how much you can borrow together as a result.
They’ll typically use income multiples where, for example, your combined gross annual salary is multiplied by four, 4.5 or up to 5.5, depending on the lender and the scheme.
After that, they’ll deduct monthly financial commitments like credit card balances, loan repayments, childcare, maintenance and pension contributions. That whole assessment is what they use for affordability.
It’s not just as simple as it was 20 years ago, when it was simply five times your income. There are other things to consider now as well.
How much deposit do I need for a joint mortgage?
Typically, the minimum deposit for a joint mortgage is 5% of the property value. The more you can put down together, the better the mortgage deal you’re going to get.
The minimum will be 5%, and then mortgage rates decrease with every 5% more – so they improve at 10%, 15%, 20%, and so on.
Can you transfer a joint mortgage to one person?
Yes. It’s not straightforward, as it requires a legal process called a Transfer of Equity.
It also needs the lender to approve it. This might happen if a relationship comes to an end through divorce or separation. One person wants full ownership, or perhaps only one person can afford the mortgage loan.
Can I get a First Time Buyer joint mortgage if I have bad credit?
Yes, you can still get a First Time Buyer mortgage with bad credit, but it’ll depend on the severity of your credit issues, your partner’s credit, too, and your overall financial profile.
Lenders look at both applicants. One person’s bad credit can affect the application, but it doesn’t always mean outright rejection. Things to be wary of are missed or late payments, defaults, county court judgments (CCJs), IVAs or bankruptcies.
High credit usage and recent payday loans are also risky. You should definitely sit down and check your credit file before embarking on any mortgage application.
How can a mortgage broker help me get a joint mortgage as a First Time Buyer?
As I usually say at the end of these podcasts, speaking to an experienced broker is the first thing you should do. It avoids wasting any time by making mistakes. We know our way around the markets and we know the criteria.
We can help you navigate your way through it in a much smoother, more efficient way than you’d have time for if you were doing it yourself.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
For specialist tax advice, please refer to an accountant or tax specialist.
The information contained within this article was correct at the time of publication but is subject to change.
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