But, much like the vintage TV show Generation Game, where teams of two people from different generations of the same family competed to win prizes, there’s plenty of potential for disaster as well as triumph when working with family.
House prices have significantly increased in the UK, while wages haven’t kept pace, making it difficult to save for a deposit and afford mortgage repayments, particularly for first-time buyers.
Add to that high living costs and increased mortgage rates have forced potential buyers to postpone their dream of buying their first home, with as many as a fifth of applicants turned down due to poor credit ratings.
One in four (23%) were also denied a mortgage due to having an insufficient deposit.
Around half of Gen Z Brits would consider getting a mortgage with their mum or dad if it meant they could get that first foot on the property ladder, according to a new study by Purplebricks Mortgages.
It found that a third (35%) of 18 to 27-year-olds would go as far as signing on the dotted line for a long-term loan with mum or dad, if it meant they could secure themselves a home.
Operations Director at Purplebricks Mortgages, Phillippa Jackson says a joint-mortgage can work for the right buyers, but highlights some potential bumps in the road for family relationships along the way.
Do you have a bad credit rating?
Phillippa says: “Having a poor credit rating is one of the top reasons for first-time buyers failing to make it onto the property ladder.
“Joining forces with a parent with a strong credit history can help you to wipe the slate clean. If successful, and your mortgage is managed well, this will in turn help to rebuild your credit rating further down the line.”
Do you need to borrow more?
Phillippa says: “The obvious advantage of teaming up with a parent is that you can borrow more money.
“Mortgage lenders calculate how much you can borrow based on your income and expenses.
“Providing the parent has a stable salary or pension, you can significantly increase the loan amount you’re eligible for.”
How much can you afford to pay off each month?
Phillippa says: “Teaming up with a parent will likely mean a better combined credit score, which might help to secure a lower interest rate, reducing monthly payments and total loan costs in the process.
“But, two heads are better than one, as they say – meaning two incomes boosts your ability to make mortgage repayments each month.”
Are you fed up with renting?
Phillippa says: “There are many reasons why renting might be a better fit than homeowning, especially in the short term.
“But looking at the bigger picture, the earlier you can own, the less money you’re paying someone else in rent.
“Early homeownership means building equity instead of just paying rent. It will likely stand you in good stead for the rest of your life.
Are you fully aware of the facts?
Phillippa says: “A joint parent/sibling mortgage might look good on paper, but there are a number of pitfalls.
“It’s important to be fully aware of what you’re letting yourselves in for, to have full and frank discussions with each other, and agree a strategy in case you’re faced with an adverse scenario – like one of you loses their job, or there’s drastic change to your income.”
Phillippa recommends the following areas are broached prior to making any agreement:
Who’s on the hook if payments are missed?
Phillippa says: “However much of a deposit the parent has provided, the buck(s) don’t necessarily stop here.
“Be aware that if your payments are missed, the parent is equally responsible to keep on paying.
“A parent’s credit score is linked to the mortgage also. So, if the child misses payments, the parent’s credit score will also be negatively affected, which may result in higher interest rates on future credit.
“This risk continues for the entire mortgage term unless the parent is removed from the agreement.
“I strongly recommend both sides need to be fully aware of this before entering into any agreement”
Will it affect future borrowing ?
Phillippa says: “The parent may be restricted from taking other loans while named on a joint mortgage. When a parent is listed on a joint mortgage, the entire monthly repayment amount is counted as a financial obligation on their credit profile — even if they’re not contributing financially day-to-day.
“This could affect debt-to-Income (DTI) ratios, which most lenders use to assess affordability for any future loans, such as car finance, personal loans, retirement equity releases or buy-to-let mortgages.
“And remember, even if you are just “helping” a child, lenders treat the joint-mortgage as the parent’s liability and it will reduce their borrowing capacity.
Full disclosure is vital
Phillippa says: “A parent is taking on financial risk, which might affect credit and future borrowing.
“I cannot recommend strongly enough that you sit down and have an open conversation about responsibilities, legal agreements (like a deed of trust), and future plans (e.g. selling or refinancing).
“Speaking with a mortgage advisor and solicitor to protect both parties is also a good idea.”
Stamp Duty (UK)
Phillippa warns “If the parent owns another property, they may face higher stamp duty. This is because owning another property (even with a mortgage) triggers the higher stamp duty rate for second homes, even if it’s a joint mortgage.
“In England and Northern Ireland, there’s a 3% surcharge on top of the standard Stamp Duty Land Tax (SDLT) rates for additional residential properties.”
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Do you have an exit strategy
Phillippa says: “Discussing how and when a parent will be removed from the mortgage and agreeing to a timeline on this is vital. All parameters must be discussed and ironed out before making any long term commitment.”
“A mortgage with a family member could be a smart move for first-time buyers. What is essential is that it is approached with full transparency, proper legal advice, and mutual trust.
“Open conversations about responsibilities, legal agreements (like a deed of trust), and future plans (e.g. selling or refinancing) are all a must before entering into any formal agreement.”