How to broaden your options with a joint buy to let mortgage

Whether for financial reasons, legal reasons, to help with obtaining a mortgage, to split risk or for simple convenience, it can sometimes be beneficial to apply for a joint buy-to-let mortgage.

See how pooling your resources with one or more joint applicants; a friend, partner or family member can help in a number of situations.

Why you might want a joint buy-to-let mortgage if you are a first-time landlord or first-time buyer

If you have never owned a property, whether to live in or to let out, your choice of mortgage may be limited. One way to broaden your funding options is to apply jointly with an existing homeowner or a landlord who owns at least one rental property.

For instance: many individuals want to help their younger relatives buy a property, but the younger party either cannot afford to buy a home where they live, or would prefer to rent. Jointly purchasing a rental property can help secure a foothold on the real estate ladder whilst circumventing many lender’s requirements that the main applicant own a property.

This can also have the added benefit of increasing the capital available for a deposit (see ‘to pool your resources’, below).

To pool your resources

The maximum loan-to-value (LTV) ratio for a buy-to-let mortgage is 85% – and product choices at this gearing threshold can be limited. Having more capital can enable borrowers to put down a larger deposit and access more competitive products, or indeed, expand their purchasing options.

By pooling your resources with one or more other borrowers you can increase the amount of start-up cash you can invest into your buy to let business. You can also split the ongoing costs of running the property.

To reduce tax exposure

Sometimes transferring ownership of a property can generate tax exposure.

Example: Person A wishes to transfer ownership of a mortgaged rental property to person B, who will take on both the property and the mortgage. In taking on the mortgage, a chargeable consideration is created and Stamp Duty Land Tax (SDLT) may be payable.

https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

If it is amenable to both parties, keeping person A on the title (and having them retain a share of the mortgage) may reduce the amount of tax payable.

But getting a joint BTL mortgage is not a decision to be taken lightly

All applicants need to be on the same page

Buying to let is only successful with careful forethought and a good grasp of what you want from your investment, as well as the commitment and responsibility of being a landlord.

All joint applicants need to be on the same page when it comes to their desired outcomes and preferred level of financial risk, and they should have a similar vision of how long they want their investment to last and what their exit strategy will be. This will help to avoid disagreements or problems in the future.

Everyone is responsible for paying their share

Joint buy to let applicants will share responsibility for repaying the mortgage and meeting management costs. If one person defaults on their share, the other will have to pick up the bill – and if a joint mortgage falls into arrears because one borrower didn’t meet their share of the payment, the others could see their credit score affected.

How to split ownership – joint tenants or tenants in common

Joint tenants own equal shares of a property

The terms ‘beneficial joint tenancy’ and ‘tenancy in common’ refer, confusingly, to both renting arrangements for renters in a shared flat and to ownership arrangements for joint owners. In this case, we refer to the latter.

Joint tenants, or joint owners, are jointly and severally liable for their property and effectively treated as a single owner. In practical terms, this means that they will always own equal shares, and if one owner dies, their share will automatically pass on to the other owners.

Tenants in common can own unequal shares

Tenants in common are still jointly and severally liable for the mortgage debt, but ownership of the property is split into shares that may be equal or unequal. This is usually inferred from the size of each owner’s financial contribution to the property.

Tenants in common can name beneficiaries to receive their share in a property when they die, rather than ownership passing on to the joint owners by default.

Though this arrangement is often more beneficial for joint buy to let applicants, it can often be difficult to prove capital contributions without the aid of a legal document, such as a declaration of trust.

Cement the agreement with a declaration of trust

According to the Law Society, if individual interests in a property are not recorded at the time of purchase, the legal assumption is that both or all parties own the property jointly and equally.

The easiest way around this is for tenants in common to prepare a declaration of trust, which will record the shares of the deposit, purchase costs and management costs contributed by each party, how much of the property each party owns and how rental income and sales proceeds should be divided.

It can also set out under what circumstances one person’s interest in the property can be bought out, and whether the other owners take automatic precedence over third parties (the Right of First Refusal). As such, joint tenants can also benefit from preparing a declaration of trust.

Always seek the assistance of a legal professional when drawing up a binding document such as a declaration of trust.

The opposite arrangement: buying jointly with one name on the deed

Sometimes two or more people might wish to invest jointly in a property, but it would be problematic to put all names on the deed. This might be because:

  • One or more applicants is an expatriate, or does not have indefinite leave to remain in the UK
  • One or more applicants has a poor credit rating
  • One or more applicants does not fit the lender’s criteria

In this case, the process might be to have just one applicant named on the mortgage. A declaration of trust can then be used to record the contributions made by the other investors and set out the management and sale particulars, in order to safeguard all parties and protect their beneficial interests.

Again, always be sure to seek professional legal advice if you intend to enter into a binding contract.

Finding a joint buy-to-let mortgage

Buy to let lenders will consider applications from groups of between two and four applicants, depending on the lender’s individual criteria.

Bear in mind that, depending on how many people are applying for a mortgage, some or all of the following may apply:

  • Paper-based application: Some lenders will require wet signatures from joint applicants and therefore insist on a paper-based, rather than online, application.
  • Income assessment: In the case of applications from three or four people, only the income of the first two applicants will be counted in affordability or criteria assessments by underwriters. In some cases, 50% of the third applicant’s income may be counted.
  • Certain financial exclusions: Some lenders may refuse to grant a joint mortgage if any of the applicants fits certain excluded criteria. This might include having recently taken out payday loans or incurred gambling debts.

For assistance finding a joint mortgage, apply for free using the link below or get in touch with us using either of the numbers at the top of this article.

This information should not be interpreted as financial advice. Buy to let mortgage rates are subject to change. Speak to our advisors for a mortgage illustration.

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