The Growing Popularity And Need For Shared Mortgages.

In recent times, it has not been easy for young people and first time buyers to purchase their first property, so there has been an increase in shared mortgages to help them to own their first home.

A shared mortgage is just as it sounds. It's a group of people clubbing together to obtain a mortgage on a property. Not only do you share the mortgage, you also share the deposit, so if you need a £30,000 deposit and there are 4 of you, you only need £7,500 each.

Many lenders will allow up to four borrowers on the same mortgage and will typically lend around two and a half times the total salaries of the joint applicants. However, as with many financial products, a shared mortgage is a great idea for some, but not for others.

There can be some issues with property and mortgage sharing, so it is imperative that you understand the contract from the beginning, including what is expected from your as a borrower and the 'rules' involved with such a contract.

Every borrower is responsible for payment of their own share of the mortgage, and generally the other borrowers are all responsible for each other's payments too, so if one person falls behind on payments the others will be expected to pay the owed share. If two people fail to pay, the same applies so as you can see it can get messy if the borrowers are not responsible in keeping up with their payments. Property shares are often effected through friends, so also beware that such responsibilities can lead to fall outs and disputes.

Another potential pitfall with a shared mortgage is that your circumstances are likely to change in the future. One of the joint parties is likely to want to settle down with a partner at some point, or may be forced to relocate because of their job. Whilst a shared mortgage may suit young people who have not settled down, your circumstances can quickly change.

You will also need to discuss around the issue of how you want the property to be purchased. You can set the purchase up so that each person owns their own share. For instance, if 4 people bought the property each can own a 25% share of the property so the remaining 3 can buy out the remaining share if someone leaves. Otherwise you can all own 100% of the property between you. As you can see, the 'own your own share' option is much better as you have more freedom to do what you like with you own share.

A 'joint tenancy' divides the property into equal shares distributed between the owners. 'Shares in common' means that each property owner's share of the property is decided by them. Whichever way the property is divided, these choices offer substantial legal protection for each party in the event of their death. It means that their share of the property can be distributed according to their wishes.

Entering into a shared mortgage is a fantastic way to get onto the property ladder, as in the current climate many people, especially young people just can't afford to do it alone. But make sure that you do follow these steps and read everything thoroughly, as tedious as it might be trawling through a 20 page contract. It will save any nasty surprises in the future.

With the correct advice and the right contracts in place, a shared mortgage can be a great way of getting on the first rung of the property ladder.

Comments? Questions? Email Here

© HowtoAdvice.com

How to Advice .com