Go Direct News Mates Mortgages - can you borrow as much as you would think?

24 Nov 2024

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Specialist UK Mortgages...

Mates Mortgages - can you borrow as much as you would think?

With interest rates predicted to rise further, and house prices still increasing, first time buyers may look at buying a home with a group of friends as an alternative and affordable way to get themselves onto the property ladder. But as Julia Harris, mortgage analyst at moneyfacts.co.uk explains, this does not always mean you can borrow as much as you would think.

“Property prices still beyond the reach of many would be first time buyers using the traditional 5-10% deposit, at 3.5 times salary over 25 years model.

Lenders have come up with a number of initiatives to try to overcome the difficulties that people face when trying to buy their first home. So far they have offered extended mortgage terms (over 40 years in some cases), increased affordability parameters (five times income plus), offered interest only loans without requesting evidence of a repayment vehicle, and have engaged with the Government in specific first time buyer schemes.

“But one relatively new option for first time buyers which has not been explored so deeply is the possibility of buying with a group of friends. Moneyfacts.co.uk research has shown that over 60 mortgage lenders will accept an application from up to four individuals.

“But with 70% of such lenders still only taking the highest two salaries into consideration, getting a big enough mortgage still remains a problem. So while the monthly repayments will be more affordable due to being spread between all applicants, the property itself may still remain out of reach. Lenders that will consider up to four individual salaries include Britannia and HSBC.

“So how do the affordability calculations compare?
Moneyfacts.co.uk selection

Lender	Max no of applicants	Calculation applied
Britannia	4	2 x all incomes
C&G	4	Highest two incomes
HSBC	4	All incomes – ability to pay
NatWest	4	Ability to repay for highest 2 incomes plus incomes of other parties
Northern Rock	4	Highest two incomes
Woolwich	4	Highest two incomes (not flexible or offset mortgages)
Yorkshire BS	4	Highest two incomes, plus income from other parties

“This table highlights the difficulties potential homeowners face in trying to comprehend the amounts different lenders are prepared to advance. With a range of income criteria considered at different rates and with some using incomes multiples and others using ability to repay models, it makes the task of searching a lender that will suit you very difficult, unless you actually speak with an adviser of the bank.

“However finding a lender that can offer a suitable mortgage to multiple borrowers is only the fist step; the other aspects of the application may be a bit more complicated.

Do all parties have a clean credit history? How are the mortgage repayments made if one party was to lose their income? What are the legal implications if one of the group ‘wants out’ once the mortgage is up and running?

“Increased interest in buying with others has even resulted in websites designed to match make house buyers, but is buying a home with strangers taking the need to be a property owner just too far?

“Many people find that just living and renting with a partner for six months can be difficult, let alone owning and sharing a property for at least two years with three people that you don’t know well. It is unlikely that you are going to be able to afford anything that spacious, so the strains of sharing a bathroom and potentially a bedroom will be a real test of your relationship with your friends.

“Many mortgages are not really designed for this kind of situation. Despite mortgages with as tie-ins as short as six months being available, the most competitive fixed or discounted rates will be for a minimum term of two years. On the face of it two years may not seem very long, but it could seem like an eternity if your fellow co-owners turn out to be housemates from hell.

“There is no doubt that buying that first home with a group of friends will work for some, but the growing interest in such ventures just goes to show the lengths that people are prepared to go to become property owners.

Moneyfacts asked the Council of Mortgage Lenders for their views on this topic, and their response was as follows:

"Buying with friends can be a realistic way to get onto the housing ladder, and can be cheaper than renting. But the more people involved, the more important it is to think about the risks if one of the partners defaults, or wants to sell. All the co-owners will be "jointly and severally" liable for the mortgage payments, which means that even if one person defaults the others are still responsible for ensuring the entire mortgage gets paid. And, if the property is owned in unequal shares, it's also important to ensure that you register the ownership as "tenants in common" with unequal shares, to ensure that if there is subsequently any dispute it is clear what portion of the property is owned by each partner. These complexities mean that so-called "mates mortgages" are probably destined to remain a small and specialist part of the market, rather than becoming the norm."

NOTES TO EDITORS:

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.

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