As young people become increasingly reliant on the bank of mum and dad (BoMaD) in their quest to become homeowners, the industry has accommodated by introducing a range of family mortgage products.
One of the most common is a joint mortgage with parents. In theory, the process isn’t too dissimilar to getting a joint mortgage with a partner, but there are a few fundamental factors that could inhibit an application.
This guide explains what you need to know before applying for a joint mortgage with parents, the pros and cons of doing so, and lender expectations from applicants. We also cover a range of alternative family mortgage options for you to consider.
Everyone included on the application form will need to meet the lending criteria and will be jointly liable for the mortgage repayments. This means that if one applicant fails to make a payment (defaults) one month, the responsibility will fall on the other.
All applicants named on the deed will have a legal claim to ownership of the property, the details of which will be set out in the terms of your agreement.
This option is usually reserved for joint borrowers that are married or in a long-term relationship.
This option is usually more appropriate if you’re buying with a friend or family member, but it’s up to you to decide ownership terms if you decide to buy a property with your parents.
Either way, it’s important to seek advice before coming to a decision. If you opt to be tenants in common, you might want to set up a deed of trust to outline how much of the property each tenant has ownership over. This will help avoid misunderstandings or complications later down the line.
Joint mortgages can be an attractive prospect for children and parents alike. Lenders take both parties’ income into consideration on a joint mortgage application, which can give children more credibility and boost their borrowing power.
For parents, it can be a sure-fire way of giving their kids a leg-up onto the property ladder.
While joint applications may be advantageous, especially for first-time buyers, single applicant mortgages are simpler to arrange and come without the associated risks.
Remember, both parties are considered jointly liable for repayments, so if one of you defaults, the other will have to pick up the slack.
Similarly, there may be more suitable options available to you as a buyer. For example, if you can comfortably afford the repayments but are struggling to save the deposit, asking your parents for a gifted deposit or personal loan might be a more suitable option.
If you fall into arrears and your parents are unable to cover in full, a mortgage provider is within their rights to repossess any other properties your parents own, as well as the one you’re buying together.
While entering into a joint mortgage agreement could save buyers a lot of money in the initial stages, there are a number of additional costs that may be incurred by either you or your parents later down the line.
If your parents are existing homeowners, you will have to pay a second home surcharge of 3% on the standard stamp duty rate. Speak to an expert to understand how stamp duty works, and how much this could set you back.
Finally, if the property purchase is classed as a second home for your parents, you’ll be required to pay capital gains tax when selling it at a profit. If this applies to you, it’s important to consider the implications when purchasing your next home.
In some cases, the age cap is as low as 65, but there are some lenders who are willing to accept homeowners in their 70s and 80s, and even some niche providers who allow up to 85.
If your parents are set to exceed the maximum age cap set out by the lender, you may have to reduce your mortgage term and increase the repayments accordingly.
For example, if you wanted to take out a joint mortgage with your 55-year-old father and your chosen lender had an age cap of 75, the mortgage term could be a maximum of 20 years. Given that the average period for a repayment mortgage is 25 years+, you (and the lender) would have to be certain that you could meet the higher repayments required of a 20-year term.
If the age cap is a concern, a broker will be able to point you in the direction of the most suitable lenders specialising in later life lending. Get in touch to speak to a member of the team.
To mitigate against this, lenders may either impose a maximum age cap as above, or your parents will need to prove that the income from their pension or other sources is sufficient to continue covering the repayment post-retirement.
If your parents have already retired, it doesn’t mean you have less chance of being accepted for a joint mortgage. Provided they don’t exceed the maximum age at the term-end and can prove they can afford it, there are still options available.
In some cases, it can actually be easier for parents to demonstrate affordability if they are already retired because their bank statements will reflect their monthly income.
If your parents are yet to retire, mortgage providers may ask for confirmation of the following before deciding whether or not they are willing to lend:
If your parents receive additional income from other investments, such as shares or property, this would be the time to declare it.
This involves the transfer of a sum of money from parent to child, which is used to form all or part of a deposit for a home. A gifted deposit must come with no obligation to repay the money, and parents may have to sign a waiver to confirm this.
Even though you won’t be paying interest on it, this will be treated as a loan by mortgage providers, which may impact your affordability assessment and how much you’re able to borrow.
A parent-child loan could be a viable option if your child is struggling to come up with a deposit, but would be best avoided if affordability is an issue.
A charge is placed against the guarantor's house, which means that if the borrower defaults and the parent is unable to cover the repayments, their home (as well as the property you’re buying) could be at risk of repossession.
Some guarantor products offer ‘100% mortgages’, meaning some lenders allow borrowers up to 100% LTV, which could be invaluable if your child is struggling to save for a deposit.
These funds are locked away for a certain period of time (although it may be possible to make withdrawals) until the child has paid off around 25-30% of their mortgage.
This is a good option if you’re looking to save your child money on buying a home but aren't in a position to give funds away permanently. It also comes without the risks associated with other family mortgage products.
One of the most common is a joint mortgage with parents. In theory, the process isn’t too dissimilar to getting a joint mortgage with a partner, but there are a few fundamental factors that could inhibit an application.
This guide explains what you need to know before applying for a joint mortgage with parents, the pros and cons of doing so, and lender expectations from applicants. We also cover a range of alternative family mortgage options for you to consider.
What is a joint mortgage with parents?
A joint mortgage with parents is when you borrow money for a home with either one or both of your parents.Everyone included on the application form will need to meet the lending criteria and will be jointly liable for the mortgage repayments. This means that if one applicant fails to make a payment (defaults) one month, the responsibility will fall on the other.
All applicants named on the deed will have a legal claim to ownership of the property, the details of which will be set out in the terms of your agreement.
What’s the difference between ‘joint tenants’ and ‘tenants in common’?
When you take out a joint mortgage with someone else, you need to decide how ownership of the property is defined legally.Joint tenants
Joint tenants jointly own 100% ownership of the property, and will automatically inherit it if the other person dies. Joint tenants can also claim an equal share in any profit that comes from the sale of the home.This option is usually reserved for joint borrowers that are married or in a long-term relationship.
Tenants in common
Tenants in common can each own an equal or different share of the property. If one tenant passes away, ownership isn’t automatically inherited by the other - each chooses who their share is left to in their will.This option is usually more appropriate if you’re buying with a friend or family member, but it’s up to you to decide ownership terms if you decide to buy a property with your parents.
Either way, it’s important to seek advice before coming to a decision. If you opt to be tenants in common, you might want to set up a deed of trust to outline how much of the property each tenant has ownership over. This will help avoid misunderstandings or complications later down the line.
How parents can help their children buy a home with a joint mortgage
Although some mortgage providers can be cautious about lending to parent-child applicants, providing the lending criteria is met there’s no reason you shouldn’t be considered.Joint mortgages can be an attractive prospect for children and parents alike. Lenders take both parties’ income into consideration on a joint mortgage application, which can give children more credibility and boost their borrowing power.
For parents, it can be a sure-fire way of giving their kids a leg-up onto the property ladder.
Is getting a mortgage with your parents a good idea?
Before you decide to get a mortgage with your parents, the first thing to consider is whether joint ownership is necessary.While joint applications may be advantageous, especially for first-time buyers, single applicant mortgages are simpler to arrange and come without the associated risks.
Remember, both parties are considered jointly liable for repayments, so if one of you defaults, the other will have to pick up the slack.
Similarly, there may be more suitable options available to you as a buyer. For example, if you can comfortably afford the repayments but are struggling to save the deposit, asking your parents for a gifted deposit or personal loan might be a more suitable option.
What are the disadvantages of having a joint mortgage with parents?
If you tend to have a lot of conflict with your parents, a joint mortgage might be best avoided. There are a lot of important decisions to be made, such as ownership terms and when the property should be sold, and you will need to be in agreement.Financial risks and liability
When you take out a mortgage with another person, your credit reports are automatically linked until the loan is repaid in full. If you have a bad credit score this could inhibit your chances of getting approved, to begin with, and once linked, could harm the other’s chances of being approved for finance in the future.If you fall into arrears and your parents are unable to cover in full, a mortgage provider is within their rights to repossess any other properties your parents own, as well as the one you’re buying together.
While entering into a joint mortgage agreement could save buyers a lot of money in the initial stages, there are a number of additional costs that may be incurred by either you or your parents later down the line.
Tax implications
First-time buyers (FTBs) in England, Wales, and Northern Ireland are exempt from paying stamp duty on purchases below £300,000. Unless your parents are also FTBs, you will miss out on this discount when buying jointly.If your parents are existing homeowners, you will have to pay a second home surcharge of 3% on the standard stamp duty rate. Speak to an expert to understand how stamp duty works, and how much this could set you back.
Finally, if the property purchase is classed as a second home for your parents, you’ll be required to pay capital gains tax when selling it at a profit. If this applies to you, it’s important to consider the implications when purchasing your next home.
Maximum age cap on mortgage terms
Most lenders will only allow homeowners to borrow up to a certain age.In some cases, the age cap is as low as 65, but there are some lenders who are willing to accept homeowners in their 70s and 80s, and even some niche providers who allow up to 85.
If your parents are set to exceed the maximum age cap set out by the lender, you may have to reduce your mortgage term and increase the repayments accordingly.
For example, if you wanted to take out a joint mortgage with your 55-year-old father and your chosen lender had an age cap of 75, the mortgage term could be a maximum of 20 years. Given that the average period for a repayment mortgage is 25 years+, you (and the lender) would have to be certain that you could meet the higher repayments required of a 20-year term.
If the age cap is a concern, a broker will be able to point you in the direction of the most suitable lenders specialising in later life lending. Get in touch to speak to a member of the team.
Lender income requirements
Similarly, mortgage providers will have minimum income requirements as part of their affordability criteria. If your parents are likely to enter retirement or are approaching retirement age during the term of the mortgage, this could prove problematic for a joint mortgage application.To mitigate against this, lenders may either impose a maximum age cap as above, or your parents will need to prove that the income from their pension or other sources is sufficient to continue covering the repayment post-retirement.
If your parents have already retired, it doesn’t mean you have less chance of being accepted for a joint mortgage. Provided they don’t exceed the maximum age at the term-end and can prove they can afford it, there are still options available.
In some cases, it can actually be easier for parents to demonstrate affordability if they are already retired because their bank statements will reflect their monthly income.
If your parents are yet to retire, mortgage providers may ask for confirmation of the following before deciding whether or not they are willing to lend:
- Expected retirement age.
- Current pension pot value.
- Expected retirement income.
If your parents receive additional income from other investments, such as shares or property, this would be the time to declare it.
What are the alternatives to joint mortgages with parents?
Depending on your individual circumstances and preferences, there are a plethora of mortgage products out there that give parents the opportunity to give their children a head-start to homeownership.Gifted deposit
For many parents, gifting a deposit can be the simplest way to help their child buy a home - provided you have the funds to do so.This involves the transfer of a sum of money from parent to child, which is used to form all or part of a deposit for a home. A gifted deposit must come with no obligation to repay the money, and parents may have to sign a waiver to confirm this.
Lending money
If your parents are unable or unwilling to gift money, an alternative is to lend the sum to you to help with the deposit or other costs associated with buying a home.Even though you won’t be paying interest on it, this will be treated as a loan by mortgage providers, which may impact your affordability assessment and how much you’re able to borrow.
A parent-child loan could be a viable option if your child is struggling to come up with a deposit, but would be best avoided if affordability is an issue.
Guarantor mortgages
Instead of getting a joint mortgage with their child, parents could instead choose to act as a guarantor. In doing this, the parent has no legal ownership of the property but is liable if the child is unable to make a repayment.A charge is placed against the guarantor's house, which means that if the borrower defaults and the parent is unable to cover the repayments, their home (as well as the property you’re buying) could be at risk of repossession.
Some guarantor products offer ‘100% mortgages’, meaning some lenders allow borrowers up to 100% LTV, which could be invaluable if your child is struggling to save for a deposit.
Family offset mortgages
A family offset mortgage allows parents to offset the value of their savings against their child’s mortgage. This will reduce the amount of interest the child has to pay on the mortgage.These funds are locked away for a certain period of time (although it may be possible to make withdrawals) until the child has paid off around 25-30% of their mortgage.
This is a good option if you’re looking to save your child money on buying a home but aren't in a position to give funds away permanently. It also comes without the risks associated with other family mortgage products.
First Time Buyers Expert Article by
Nicola Schutrups
(Managing Director)
The Mortgage Hut