Everything You Need to Know About Group Mortgages
What’s The Problem?
The cost of the average UK home is now just over £200,000 – nearly five times the UK average income.
It has become increasingly difficult for first-time buyers to buy a property – even with two incomes, many areas of the country are unaffordable for most first-time buyers.
A recent survey has shown that around 57% of first-time buyers would consider buying a property with friends. Over the last few years, more and more high street lenders have started to offer just such mortgages; group mortgages that enable up to four people to pool their income and jointly purchase a property.
What’s A Group Mortgage?
A group mortgage is a mortgage held by 2-4 people, with the amount lent being based on the incomes’ of all those people.
The property being purchased is also jointly owned by all the people on the mortgage – so four friends might buy a house, based on all four of their incomes, and 25%-owned by each of them.
Group mortgages have been around for a few years now, but over the last couple of years there’s been a surge in popularity as house prices have continued to rise, pricing many first-time buyers out of the market.
Group mortgages currently represent around 2%-3% of the UK mortgage market.
One major high street bank has reported a 50% rise in applications for group mortgages and this trend looks set to continue, especially in the south-east and in major cities.
Why Choose a Group Mortgage
Group mortgages offer a solution to first-time buyers who cannot afford to buy a property singly.
Either they do not have access to a suitable deposit, or, more likely, the mortgage required is too large to be based on their salary alone.
Group mortgages offer a number of advantages:
- Get a foot on the property ladder even if you can’t afford a property on your own
- Start benefiting from rises in property prices
- Escape the rent trap
- Get a place to call your own
The problem with renting is that you aren’t left with anything when you move out. It’s money down the drain.
As the monthly payments for a rental property are sometimes more than those for a mortgage, it can be very difficult to save up for a deposit when you are renting. Group mortgages can provide a solution to these problems.
How Do Group Mortgages Work?
Taking out a group mortgage is very similar to taking out a regular mortgage, except there is an extra stage required to agree the terms of the joint ownership.
If you are thinking of doing this, here’s how it works:
- Decide who will be in the group (maximum 4 people)
2. Jointly select a property and agree a price with the vendor
3. Find a lender who offers group mortgages – a broker can be helpful
4. Apply for a group mortgage
5. Draw up a “Declaration of Trust” document
6. Chase the broker and the vendor to get the deal moving. Move in!
Each person whose income is being used to fund the mortgage will be required to provide proof of earnings and undergo a credit check, just like a regular mortgage.