Introduction
With the dramatic and continued increase in property prices, more and more people are clubbing together to take out shared group mortgages. This article discusses the different types of Group Home Loans on offer by the different mortgage companies and also looks at some of the problems of group ownership.
Shared Home Loans
With the rise in house prices and people struggling to individually get on the property ladder more and more people are willing to shelve their differences and take the risk of sharing their living space and taking a shared home loan. Lenders report that around 2-3% of all mortgages are now being taken out under shared ownership and predict the numbers to rise fast. One mortgage lender reported a 50% rise in shared home loans over the last twelve months and others have reported very strong growth.
The main rises in this area are coming in the South East and in major cities where first time buyers are being priced out of the market. But by taking a group mortgage, potential homeowners can typically borrow more than they could by going it alone or with a partner and can therefore secured a property that would otherwise have been out of their reach.
Group mortgages are not a new concept or standalone separate products to mainstream mortgages. Typically mortgage lenders offer their standard loan deals and rates to groups of borrowers. So the loan packages include the standard fixed rate, variable rate and tracker mortgages. But the amount borrowers will be able to borrow varies from lender to lender as different loan providers adopt different lending criteria. With the growing trend in this type of mortgage one change in recent times is that more lenders are willing to consider four individual salaries, whereas before they would only take two.
Shared mortgages are typically being taken out by people in the twenty to thirty five age groups and are normally by groups of graduates or young professionals who may already have rented a property together. Most people consider it as a last option when they have failed to raise a deposit themselves from parental help or from savings. However the changes in lifestyles like delaying marriage or starting a family is also contributing to the growth in shared home loans.
Mortgage experts see this type of lending as higher risk than standard loans. For example, relationships between people taking group mortgages can be more remote than a standard mortgage, which would typically be taken out by couples or spouses. Therefore lenders sometimes ensure that if one person on the mortgage were to move on, the remaining borrowers could still afford to take on the remaining stake and service the higher loan repayments.
Lenders are therefore usually more conservative when they come to assessing the lending criteria. Some score each borrower individually according to their salary and outgoings and then aggregate it. Others will lend up to three times each of up to four salaries, whereas others will lend twice the two highest salaries in the group and one times the income of the remainder of the group.
One of the key things about taking on a shared home loan is that each individual in the group can be held fully responsible by the lender for the entire loan if their fellow borrowers do not keep up with repayments.
As there is a plethora of detail to consider, it is highly recommended that people looking at a shared loan should draw up a legal agreement before taking on the mortgage. Issues range from who is paying what share of the deposit, which is responsible for what proportion of the repayments and what will happen when somebody wants to sell their share. Even the things that may seem mundane like shares of maintenance costs or who gets the biggest bedroom are equally as important.
All this information can draft into a document known as a "declaration of trust". These types of contracts can be bought off the shelf or are available from a number of websites, but it is wise to go to an experienced property lawyer, as these types of agreement can be fairly complex.
Conclusion
For some people wanting to get on the property ladder, shared ownership and loan payment may be the only option. With the wide variety of different lending criteria it is advisable to spend a considerable amount of time looking at all the different parameters and variables offered for shared home loans. It is also necessary to spend an equal amount of time drawing up the legal side of the agreement.
