Couples wanting to maximise their affordability eligibility by buying a property together is nothing new, while in the past few years the industry has also seen an increasing number of millennials reaching out for financial help from parents and grandparents to get on the housing ladder.
A newer trend, if statistics are to be believed, is that young people are now more open than ever to purchasing a property with their friends.
A study by M&S Bank, published last month, found 62 per cent of 18 to 30 year olds would consider a group mortgage. In the survey, two-thirds of respondents said that saving for a deposit is the main thing holding them back from buying a house.
Disheartened
Sue Fox, chief executive of M&S Bank, said: “Lots of young people feel disheartened and frustrated when they look at property prices. Saving for a deposit often feels impossible and most millennials aren’t in the position to go it alone, but might not have found their ideal partner, be ready to move in together, or may not be looking for love. This doesn’t mean homeownership is unattainable.
Key points
- Many millennials are resorting to group mortgages to get onto the property ladder
- Often it is relatives wanting to buy properties together
- It is better to have a tenants in common agreement
“We recognise that many millennials have financial goals, including homeownership, and that they should be able to do this on their schedule. Their financial future shouldn’t be dependent on the trajectory of their love life, which equally might not be something they want, or at least not in the short term.
“This is why joint mortgages can be a great option for those who otherwise wouldn’t be able to get onto the property ladder.”
Necessity might push millennials to set up home with each other, but Jane King, mortgage adviser at London-based Ash-Ridge, said she is not currently seeing an increase in enquiries for these types of mortgages.
Rather, what she has seen a rise in enquiries for are joint borrower sole-proprietor mortgages.
These types of mortgages enable borrowers struggling with the affordability criteria, because of low income, to get help from a family member typically, who will add their name to the mortgage.
Therefore, their income will be added and used to assess the affordability assessment.
The advantage of this type of mortgage is that the additional person’s name will be on the mortgage, but not on the title deed, so they are excluded from having to pay the 3 per cent stamp duty for a second property.
Instead of friends wanting to buy properties together, Ms King is getting enquiries from relatives who want to buy a property together, such as brothers and sisters and cousins.
Although relationships between family members are seen as a safer bet than buying with friends, Ms King said the risks are still very similar.
She added: “With family relations there are pros and cons to buying with them. It takes specific financial planning to make it work. When it works it is fine, but it is not as easy as it is made out to be.”
As with friends, relatives can also fall out with each other. With friends, the risks are even greater.
Ms King said: “Friends can fall out. People meet other people, want to move on then the friend gets annoyed because they don’t want to move. [Also] we are not getting the big house price rises, so friends cannot just buy the property and flip it [the way they used to], because the market is softening.
“Many parents are coming up with the deposits and they do not want to be gifting deposits to people buying with someone else, because if it all goes wrong, they might struggle to get their money back.”
For siblings buying a property together Ms King recommends they apply as tenants in common, rather than as joint tenants.
The difference, is that with the former, when a property is owned by joint tenants, if one person dies their share in the property is automatically transferred to the remaining surviving owner or owners. For example, if four joint tenants own a house and one of them dies, each of the three remaining joint tenants ends up with a one-third share of the property. This is called the right of survivorship.
Survivorship
But tenants in common have no rights of survivorship. Unless the deceased individual’s will specifies that his or her interest in the property is to be divided among the surviving owners, the interest of the person who dies belongs to his or her estate.
So under the terms of a tenants in common agreement, the proportion of deposit an individual contributes towards buying the property is clearly stated and understood.
Group mortgages have attracted the interest of a number of lenders, including Barclays and M&S Bank.
Typically, while up to four individuals can be named on the mortgage, the mortgage affordability is assessed on two named individuals, sometimes the two highest earners in the group. In other cases it is the first two individuals named on the mortgage application.
Other normal lending criteria apply. Customers have to be aged 18 or over, and they must provide details of their income and employment details and monthly outgoings.
Carl Shave, director at Just Mortgage Brokers, said he expects to see more millennials looking to buy property together, although he is not seeing massive growth in this sector at the moment.
Like Ms King, Mr Shave has also seen a growing interest for joint borrower sole-proprietor mortgages, a product which he said is still niche, but is growing.
Young borrowers are also getting financial help in the form of gifted deposits from relatives. Grandparents are also releasing equity from their properties to help.
Mr Shave said: [Buying with friends] is an area that people do need advice on, from a legal viewpoint and as far as ownership is concerned, because it is not always a case of equal-sized deposits coming from each party.
“It is never an easy one, but we do try to get our advisers to say to people, ‘we will highlight the pros and cons of what you are looking to do from a borrowing capacity, but from a legal aspect, make sure you speak to a solicitor and get things sorted out’.”
There could also be tax implications that friends also need to think about, he said.
Additionally, where borrowers are buying the property with their parents, they need to be aware that the lender will typically work out the term of the mortgage based on the oldest person’s age.
This means, the mortgage term could be significantly reduced.
Despite the risks associated with group mortgages, particularly where friends are concerned, Mr Shave said he would not dissuade anyone from doing it as home ownership is still greatly sought after in this country.
Mr Shave said: “If you flip that in relation to how much people pay in rent, it can still make financial sense for people to come together and buy a property. I would not deter them but need to make sure they understand the legalities so it does not affect them later in life.”
Ima Jackson-Obot is a features writer at Financial Adviser
