To make homeownership more affordable, one option you may consider is a multiple applicant mortgage. Although trickier to come by, with the help of a broker it’s certainly something to explore if you’re hoping to get a foot on the ladder.
This guide explains the pros and cons of multi-applicant mortgages, how to go about finding one, and what alternatives you may want to consider.
What is a multi-applicant mortgage?A multi-applicant or ‘multiple-person’ mortgage is a home loan that’s shared between more than two people. Each individual will be named on the property deeds and everyone will be jointly liable for the mortgage repayments.
Who can get a multiple applicant mortgage?Anyone can apply for a multi-applicant mortgage - although it’s best to seek advice from a broker so you know which lenders offer these products.
As with any mortgage, all parties involved will need to meet lender requirements, and there is a risk of rejection if you or one or more of your co-applicants has bad credit, affordability issues or will exceed the maximum age limit during the mortgage term.
There are no restrictions on who you can get a multi-applicant mortgage with, whether it be a partner, friends, family members, or even business partners.
That being said, it’s important to think carefully before entering into an agreement as there could be significant implications on your financial future.
How many people can be named on a mortgage?4 is usually the maximum number of applicants, but requirements vary by lender. Some may only be willing to accept more than two applicants if they are blood relatives, or there may be other stipulations attached.
If you’re applying for a multiple-applicant mortgage with the intent of boosting your affordability, bear in mind that while some lenders are happy for multiple people to be named on the title deeds, they may restrict the number of applicants whose income is considered for affordability purposes.
Be sure to speak to a broker and discover your options before committing to a decision.
How do multi-applicant mortgages differ from standard mortgages?Typically, multi-person mortgage rates and fees are similar to that of a standard mortgage. But having more than one person on the deeds allows you to combine your savings and put down a larger deposit, which can positively impact the rates you’re offered.
The larger your deposit, the more competitive the rates should be. For example, if you save a 15% deposit and another applicant saves 10%, you’ll need a 75% LTV (Loan to Value) mortgage. This should be comparatively cheaper than the 85% LTV mortgage you’d have been able to afford as a single applicant.
The savings can be particularly significant for first-time buyers, where using joint savings to move from a 95% to a 90% LTV mortgage or lower could make all the difference and save you thousands of pounds.
How much can you borrow for a multi-applicant mortgage?When determining how much you can borrow on a multi-person mortgage, many lenders will only consider the two highest income earners and apply a loan cap based on a multiple of their combined salaries.
That being said, there are lenders out there who will take all applicants' earnings into account, but it is advisable to work with a broker to identify the most suitable lender, as the increased risk posed by additional incomes could mean higher rates.
|Applicant 1||Applicant 2||Applicant 3||Applicant 4|
|Highest earners combined income||£46,000|
|Total combined incomes||£79,000|
From there, lenders will usually restrict lending at 4-4.5x the value of the combined earnings. Some may be willing to stretch to 5 or even 6x the value, although stricter stipulations may be attached to the agreement in other areas.
This table shows the difference in loans sizes if four applicants’ incomes are considered vs that of the two highest earners:
|Combined earnings||4x income loan value||4.5x income loan value||5x income loan value||5.5x income loan value||6x income loan value|
What are the benefits of a multi-applicant mortgage?There are a number of other reasons you might consider a multi-person mortgage:
Makes the process more affordableNot everyone earns enough to get a mortgage alone, so combining finances with others is an affordable way to get onto the property ladder.
Boost your applicationIf your credit history is poor, getting a mortgage with someone who has a good track record can really help your situation. This can work both ways though, so consider the implications before making a decision.
Borrow more moneyBecause at least two incomes will be used to determine your affordability, you will usually be able to borrow more money than you would if you had applied alone.
Deposit sizeBuying with others allows you to pool together your savings and put down a far larger deposit than you’d manage alone. Not only will you own more equity in the property, but this could also give you access to more favourable rates.
What are the disadvantages of a multi-applicant mortgage?There are also some cons to consider, many of which come after you’ve got a mortgage. Think carefully before taking the plunge:
More paperworkAs with every mortgage, all applicants will need to meet lender eligibility criteria. The more people there are on the application, the more paperwork is involved and the greater number of obstacles there are to overcome.
Negative impacts on your credit fileWhile combining your assets can be beneficial to some, it may be harmful for others. If you’re applying with a friend who has a patchy credit history, this could have negative impacts on others’ credit scores and application as a whole.
Mortgage liabilityIf one or more co-owners is unable to make their share of the mortgage repayments, you’ll still be liable for them. The more people there are on the mortgage, the higher the risk - something lenders also consider before making you an offer.
Safeguarding for the futureIf one or more of the applicants wants to get out of the mortgage later down the line, an agreement of terms should be discussed with the remaining co-owners. You will need to contact the lender and there may be costs involved.
There is the question of what happens should a co-owner die; if all partners are beneficial joint tenants, the surviving partner(s) will inherit the other partner's share of the property - which also leaves them responsible for the repayments.
Alternative options to a multi-applicant mortgageIf you’re looking to take out a mortgage with parents, siblings, or other family members, there may be more suitable products available. Some options to consider include:
Guarantor mortgagesIf you can’t get approved for a mortgage on your own, a guarantor mortgage could be something to explore if you have a parent or close family member who is willing to offset some of the risks by acting as your guarantor.
This usually involves the family member offering their home or savings as collateral against the loan and agreeing to cover the mortgage repayments if you aren’t able to.
While guarantor mortgage deals may allow you to borrow more or access more options, this can be a risky venture for a guarantor as they are liable for any shortfall if you fall into financial difficulty.
Family offset mortgagesFamily offset mortgages are a good way to get onto the ladder if you’re unable to save a large deposit but want access to more competitive rates - provided you have a willing parent or family member to help you out.
This type of mortgage allows family members to transfer funds into a savings account that is linked to your mortgage and is used to offset the interest charged on the mortgage. This allows you to obtain lower interest rates.
The savings are then returned to the family member once the borrower has paid back 20% - 30% and can take over full ownership.
This is a relatively risk-free option for parents who are in a position to help their children out with the hefty upfront costs of purchasing a home without having to give money away permanently.
Joint borrower sole proprietor mortgagesJoint borrower sole proprietor (JBSP) mortgages allow parents or other family members to contribute to your mortgage, without having any legal claim on the property.
JBSPs are a good option for young people building their careers, and parents can reduce their payments over time until you’re in a position to take over the mortgage in full yourself.
Seek advice from an expert before committing to a multiple applicant mortgageAlthough it can be tempting to rush into a multi-applicant mortgage, consider the potential risks and limitations before doing so.
Ensure that you and your co-applicants seek advice from a broker who will take the time to get to know all parties involved, understand your requirements, and recommend the most suitable lenders for your collective circumstances.