Online data analyst, Moneynet.co.uk, has warned of the financial pitfalls of taking out a ‘mates' mortgage', and urges potential applicants to seek advice.
The relentless rise of house prices has cause a surge in demand from first time buyers who are teaming up with friends to take their first step on the property ladder.
Around 60 banks and building societies are now prepared to lend to as many as four applicants for a single property, but this has prompted fears that many young people could be impairing their credit ratings.
When applying for a mates’ mortgage, each party’s credit record becomes linked, if one applicant has a poor credit rating then all other parties risk being adversely affected by association.
Richard Brown, chief executive of Moneynet.co.uk, says, “It’s crucial for all applicants to get their credit reports checked before proceeding. Any bad credit history on the part of one person will be instantly recorded against all parties to the mortgage”.
Moneynet.co.uk has created a checklist of precautions to take before taking out a mates’ mortgage. Firstly, applicants should appoint a solicitor to draw up an agreement to deal with changes of circumstance, such as one party wishing to move out. Secondly, all parties should take financial advice to ensure that they are adequately covered in the event of sickness or unemployment. Lastly, if affordability varies amongst the parties involved then it is vital to draw up agreements regarding relative ownership and the equity share of the property.
In the event of friends ‘falling out’ there are two options available; if all parties agree, then the property can be sold and those involved can go their separate ways. Alternatively, if only a single party wishes to leave then it may be possible to buy-out the leaving parties share provided the mortgage lender agrees and the property remains affordable.
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