Due to the ever-increasing property prices and the rising cost of living, more and more buyers are turning to the “bank of mum and dad” or considering adding their parents to the mortgage.
Although the process of adding a parent to a mortgage is similar to that of any joint mortgage, there are some notable differences. Read on to find out more.
What’s the difference between ‘joint tenants’ and ‘tenants in common’?
Joint tenancy is a legal concept related to the ownership of property by two or more people. In joint tenancy, each owner has an equal and undivided interest in the property.
This means that each owner has an equal share of the property and the right to use and enjoy the entire property.
One of the key characteristics of joint tenancy is the right of survivorship. This means that if one owner dies, their share of the property automatically passes to the surviving owner(s) without the need for probate or any other legal process.
Joint tenancy is a common way for married couples or partners to hold property, as it provides a simple and efficient way to transfer ownership in the event of one owner’s death.
Tenants in common
Tenancy in common is a form of co-ownership of property by two or more people. In a tenancy in common, each owner holds a separate and distinct share in the property, which may or may not be equal.
Unlike joint tenancy, there is no right of survivorship in tenancy in common, which means that when an owner dies, their share of the property will pass to their heirs or beneficiaries according to their will or the laws of intestacy.
Tenancy in common is often used when two or more people want to co-own a property but have different ownership interests or want to be able to leave their share of the property to someone other than the co-owner(s) upon their death.
It is important to have a written agreement in place that outlines the respective rights and responsibilities of each owner in a tenancy in a common arrangement.
How parents can help their children buy a home with a joint mortgage
There are numerous benefits to having parents included in a mortgage. While the primary advantage is the ability to leverage their additional income, there are other potential advantages as well, such as the potential to improve the overall credit score of the borrower.
Is getting a mortgage with your parents a good idea?
Buying a property with a parent can be a good idea for some people, depending on their financial situation and goals. There are several benefits, such as the ability to borrow more money and potentially purchase a more suitable property that would otherwise be unaffordable.
However, if you can comfortably afford a property on your own, buying with a parent may not be necessary or preferable.
It’s important to carefully consider all of the implications of buying a property with a parent, including potential tax implications and the possibility of shorter-term mortgages.
What are the disadvantages of having a joint mortgage with parents?
Joint mortgages with parents can have some disadvantages. Here are a few:
- Shorter Mortgage Terms: If the parents are older, the mortgage term may be shortened, as lenders may not be willing to lend for a longer term due to the age of the parents. This can result in higher monthly payments for the borrower.
- Financial Ties: If the parents are named on the mortgage, they will have a financial tie to the property, which can make it difficult for them to obtain another mortgage or sell their own home. This could limit their own financial flexibility.
- Legal Issues: If the parents are on the mortgage, they will have legal responsibilities and obligations with regard to the property. This could lead to legal issues if there are any disagreements between the borrower and the parents in the future.
- Potential Tension: Joint mortgages can create tension between family members if there are disagreements about financial responsibilities or decisions related to the property.
- Stamp duty implications: adding a parent who already owns a property to a joint mortgage can potentially result in paying additional stamp duty. This is because the additional stamp duty surcharge applies to purchases of additional properties, and if the parent already owns a property, the purchase of the new property with them as a joint owner could be considered an additional property. If available, a joint borrower sole proprietor mortgage may avoid this.
What are the alternatives to joint mortgages with parents?
There are several alternatives to buying a property jointly with parents. Here are a few:
- Buying in your own name: If you can afford to buy a property on your own, this can be a good option. It means that you will be solely responsible for the mortgage and any associated costs, but you will also have full control over the property.
- Joint borrower sole proprietor mortgage: A Joint borrower sole proprietor mortgage is a type of mortgage where two or more people can apply for a mortgage together, but only one person will own the property. This means that the person who owns the property will have full control over it, but the other person(s) will be jointly responsible for the mortgage payments.
- Gifted deposits: If your parents are willing to help you with the deposit, they can gift you the money. This can help you get a better mortgage deal and reduce the amount you need to borrow.
- Family offset mortgages: These are mortgages where a family member, such as a parent, can offset their savings against your mortgage. This can reduce the amount of interest you pay on your mortgage and help you pay it off faster.
How can strive Mortgages help?
Working with a mortgage broker like Strive, who has experience with joint mortgages with parents such as us, can help you understand all of your options and the potential advantages and disadvantages of each. We can also help you navigate the application process and increase your chances of success.