Can I get a mortgage with parents?

Can I get a mortgage with parents?

As an expert team of mortgage brokers in the UK, we constantly receive enquiries like ‘Can I get a mortgage with parent?’ , ‘can I get a mortgage with my son?’ etc. The answer is a straightforward yes but still, there are many other complications with such family mortgages.

You have undoubtedly heard of the Bank of Mum and Dad – parents have become increasingly involved in helping their offspring gain that all-important first step on the housing ladder.

Indeed, a story in the Independent newspaper on the 22^nd of October 2021 revealed that parents have helped an estimated 1.4 million buyers get their first home – to the tune of some £53.9 billion invested.

How does buying with help from parents impact you getting a mortgage? This article takes a look at what you need to consider.

Can I get a mortgage with my parents?

The simple answer is yes, you can – but potential complications arise when you look more closely at how a mortgage with your parents might work.

Joint mortgages with parents

Probably the most straightforward option is for you and your parents to arrange a joint mortgage together. It is likely to be an attractive option since it allows you to buy a more expensive property and possibly in a more desirable area.

This is because your parents’ incomes and financial means are also considered when any prospective mortgage lender weighs up questions of affordability.

There are several potential issues you and your parents might need to consider:

• If they still have an outstanding mortgage on their own home, that means they will be entering a second mortgage in any joint arrangement with you;
• their purchase – even a joint purchase with you – of another property typically may be considered a second homeA property that is purchased as a second home or holiday hom... on which they would then also have to pay a 3% surcharge on the amount of Stamp Duty for which they are liable;
• because it’s classified as a second home, your parents may also be liable to pay their share of Capital Gains Tax (CGT) on any profit they have made when the property is sold;
• whenever you seek a joint mortgage with your parents, remember that your respective financial affairs also become inextricably linked together – if you develop a poor credit rating, that impacts their own. If they have a poor credit rating, that too will adversely affect your own standing and ability to arrange other credit and loans in the future.

Joint mortgage and types of tenancy

If you are buying with help from your parents, you also need to consider the legal standing of your joint ownership of the property – a joint mortgage with parents may reflect two possible types of tenureThe type of ownership or occupation of a property, such as f...: “tenants in common” or “joint tenancy”:

Tenancy in common

• tenants in common can own different and separately defined shares in a property, explains Land Search Online, and this is a convenient form of tenure if your parents have contributed, say, 40% of the costs of your home and you the remaining 60% – you have a respective 40% and 60% ownership in the property;
• furthermore, if you or your parents die or wish to sell the shares in the home, the proceeds go to whomever you choose;

Joint tenancy

• joint tenancies are more likely to be favoured by couples since both partners then own the whole property – they have equal and undivided shares in it;
• if one of them dies, their share in the ownership of the home passes automatically to the surviving partner.

Because of the potential complications arising from either form of tenure, if you have a joint mortgage, you are probably best advised to instruct a solicitor to draft a Deed of Trust. This sets out exactly who owns what share, how much has been contributed by the respective parties, and what happens to the shares held in the event of a death or the sale of the property.

Can I get a joint mortgage with a retired parent?

There are no intrinsic obstacles to your arranging a joint mortgage with parents who have retired – except, of course, because their age and retirement may affect their levels of income and the continued affordability of the monthly mortgage repayments.

Therefore, some lenders might have a maximum age at which an application can be made or impose an age limit at which any mortgage comes to full term.

What are guarantor mortgages?

If your parent wants to help you on the housing ladder but wants to stop short of ownership and a joint mortgage, they might instead offer to be a guarantorA person who guarantees to repay a mortgage if the borrower ... for their mortgage borrowing.

In that case, the parent assumes a legal obligation to assume the responsibilities of the mortgage repayments if your child defaultsMissed payments on credit accounts, which can affect a borro... – and the mortgage lender is likely to place a charge against the parents’ property as security.

In return, though, borrowing that is guaranteed in this way allows some lenders sufficient confidence to offer so-called 100% mortgages – a loan that covers the full purchase price of the property.

Offset mortgages

Another alternative for parents eager to help their child own a first home is by way of an offset mortgageA mortgage where the borrower's savings are offset against t... – in which the parents’ savings are placed in a special account and offset against the child’s mortgage.

Since the parents’ savings are being used as collateral and attached to the mortgage advance, the child typically pays a lower interest rate on the borrowing. Note, though, that the parents will equally earn less interest on their savings, which become locked away until normally 25% to 30% of the offset mortgage has been repaid.

Next steps

Buying a home and arranging a joint mortgage with your parents can ease your path to homeownership.

While the attractions may appear obvious, there are significant implications for you and your parents, so you might want to seek early advice from experts such as ourselves here at NeedingAdvice.co.uk before accepting that help from the Bank of Mum and Dad.

FAQs – Can I get a mortgage with parents?

Can you get a joint mortgage with your parents?

Yes, you can start a joint mortgage application with your parents but you may need to understand a few details before starting the application process. There are only a few mortgage lenders who can approve your application for a parent/child joint mortgage. The main reason why these lenders do not allow applications is due to the fact that it could create a conflict of interests between the two parties. If one party dies or sells the house then the other party would lose their share of the equityThe difference between the value of the property and the amo.... Therefore, it is important to make sure that both parties are aware of all the risks involved when applying for a joint mortgage. Its always better to contact an independent mortgage broker for such joint mortgage deals

What’s the difference between ‘joint tenants’ and ‘tenants in common?

Joint tenancy is where each owner owns equal shares of the property and therefore holds title jointly. This means that if one owner decides to sell the property, he or she must sell it to both owners. Tenants in common are where each owner owns a percentage of the total property value. In order to sell the property, one owner needs to buy out the other owner(s). Joint tenancy is usually preferred over tenants in common because it gives more ownership rights to the buyer. However, if you have children, they may be entitled to live on the property after you die. These types of properties are called ‘life estates’. A life estate is similar to a leasehold property where the tenant lives in the property rent-free until the end of his or her lifetime. When the tenant passes away, the landlord takes back full ownership of the property. Life estates are also known as ‘dower’ and ‘inheritance’ properties. They are very popular among older people who want to leave their homes to their children.

Is getting a mortgage with your parents a good idea?

Yes, getting mortgage parents is a good idea to start your journey onto a property ladder in the UK. You will save money by paying off your parents’ mortgage instead of paying them directly. Also, if you are planning to move into a family home, you can use this as security against any future loan requirements. It should be noted that the parents’ savings will be used as collateral and attached to the mortgage advance. So, the child will pay a lower interest rate on his or her borrowing. If you are interested in getting a mortgage with parents, you can contact a market mortgage broker for a mortgage application.

Can I get a mortgage with my parents as a first-time buyer?

Yes, you can apply for a mortgage with your parents as first-time buyers. As long as there is no problem with the credit score of either party, you can apply for the mortgage together. Your parents can help you by providing proof of income and assets. This way, you can show the lender that you are financially stable enough to take on a large amount of debt. If you are interested you can read about gifted deposits in our other article.

Can I get a joint mortgage with my parents with a bad credit score?

Yes, you definitely can! Many banks and building societies offer mortgages for those with poor credit scores. The main reason behind offering loans to people with poor credit scores is the high default risk associated with these borrowers. Banks and building societies don’t want to lose money so they try to reduce this risk by offering low-interest rates on the loans. Even though many people with poor credit scores struggle to pay monthly mortgage payments, there are some lenders who can lend them the money with a guarantor in place. Therefore, it’s important to understand how to deal with a bad credit history before applying for a mortgage. Here are some tips:

• Try not to borrow too much money at once. Instead, spread your debts over a longer period of time.

• Keep track of all your bills and make sure that you’re repaying them on time.

• Make sure you keep up with your repayments even when you’re struggling to meet them.

• Find ways to cut down on unnecessary spending.

• Don’t miss any payments and keep a check on your credit reports.

• Contact your bank or building society as soon as possible if you find yourself unable to make repayments.

If you need further information about getting a mortgage with your parent, feel free to contact us. We would love to hear from you!