Obtaining a Group Mortgage
Having found the suitable potential house mates with whom you intend to buy, one of the next steps is to look into the types of mortgages available to groups of people looking to purchase a property together.
There is a legal limit of four people who are able to be entered onto a property deed. Therefore, it is not currently possible to obtain a group mortgage for more than four people. Bear in mind that, when you are calculating the number of people, a married couple is considered as two people.
As a general rule, couples looking to purchase a property will normally be offered approximately 2.75 times their combined salary. This is because mortgage lenders view a couple as having pooled resources and couples, therefore, are commonly viewed as one entity. Groups are treated slightly differently, with individual income and expenses looked at to calculate the amount that each individual would be able to borrow. When these figures are added together, that total is the maximum that can be borrowed. An alternative way of calculating the total amount that can be borrowed is to take the highest salary and multiply it by four, before adding the other individual incomes. This latter way of calculating the amount that can be borrowed will often lead to a much higher total amount of borrowing and this, although useful, should be borne in mind when it comes to considering the repayments.
Many high street lenders are now offering group mortgages. Although specific group mortgages are not widely offered, the standard mortgages offered by banks and building societies will often be available to more than two lenders. It is well worth asking your bank or any other lender that you feel is offering particularly good financial deals whether they allow multiple buyers to take out one of their standard mortgages.
Bear in mind that the application process is likely to be more protracted than with a standard mortgage as there will be the need to gather a lot more paperwork, in terms of references and financial statements. Most lenders will also insist on meeting in person with each of the borrowers, due to the need to make money laundering checks. These checks require lenders to ensure that they know their customer and are comfortable that the identity of the customer matches the paperwork.
Group Mortgage Repayment Issues
Repayment issues are absolutely fundamental, when it comes to a group mortgage. In almost all cases of group mortgages, the lender will insist that all borrowers are considered jointly and severally liable for the repayments.
In legal terms, this means that if one person defaults on the mortgage, the lender will require that the other borrowers make up the difference in the amount due. For example, if the total repayments are £1,000 per month between four people, this would be £250 each; in the event that one person defaults, the remaining £250 would have to be paid between the other three members.
It is possible, and indeed advisable, that a legal contract is entered into between the group borrowers to deal with this situation. Whilst this type of legal contract will normally allow those who have to make up the difference to sue the defaulting party for any costs that they incur, this does little to assist with the immediate issue, particularly if the mortgage payments stretch each individual.
Another possible repayment issue is that, if the mortgage falls into arrears due to the non-payment by one of the borrowers, all individual borrowers will potentially find themselves with a bad payment record. This may seem unjust that one borrower could negatively affect the credit record of the other borrowers, despite the other borrowers maintaining all of their payments.
In the event that one borrower finds themselves in financial difficulty, most lenders will allow them to rent their room, or to transfer their part of the mortgage and to change the names on the deed. Both of these actions will normally have to be accepted by the lender.