Mates Mortgage

by Mark Johnston

The struggle of first time buyers is well documented; they have been priced out of the housing market, while lenders have tightened their mortgage lending criteria in the aftermath of the recent financial crisis. Thus making it no longer possible to buy a home with out a substantial deposit. Some research suggests that this being the case the average age of young people, by 2025, buying their own homes may be up to 40.

Recent official figures have shown that the number of people privately renting in England alone has remarkably risen from 2.15 million to 3.35 million in just 6 years. These figures clearly show that many prospective first time buyers have had to abandon any hope of owning their own property.

According to the Council of Mortgage Lenders (CML), first time buyers rose from 14,700 in March 2011 to 15,800 in April 2011, these figures however are still less than half of the same months pre-crisis.

With facts and figures such as these the government is urging many banks and building societies alike to provide first time buyers with more products allowing them to take their first steps on to the property ladder.

Grant Shapps, housing minister is particularly calling for lenders to offer ‘mates mortgages’.

These ‘mates mortgages’ are basically were two or more friends pool the finances to buy a property together. One particular lender who already offers such a product is Britannia, now part of the Co-operative financial services, their product ‘share to buy’ allows up to four people to buy together, taking everyone’s income in to account (providing they are all going to live together), it is a fee free mortgage that allows up to 90% loan to value (LTV).

Looking more closely at the Britannia ‘share to buy’ product there are very specific criteria to meet, such as at least two applicants MUST be graduates or have professional qualifications. It is a variable rate set at 0.05% over Britannia’s standard variable rate for the lifetime of the loan, giving a current rate of 4.29%. This rate is ok at the moment as the interest rates are low but may cause problems once the rates rise. However due to the fact there are no early repayment charges (ERCs) it should mean anyone taking this product could remortgage on to a fixed rate, although Britannia said that may not be possible in all cases.

Grant Shapps said that: “if there are mates who are perfectly capable of paying monthly mortgage repayments but are struggling to fund a deposit of their own, their should be straightforward options to unite with their friends and buy a property together”.

The council of mortgage lenders (CML) effectively said of this statement that both borrowers and lenders alike should stay away from these products as they carry great flaws.

The potential problems with ‘mates mortgages’ happen if say for instance one of the joint borrowers can not for what ever reason pay their share of the mortgage, the other borrowers would then become liable for the whole repayment. Friendships could breakdown or one of the borrowers may wish to move out.

Anyone entering into such an agreement should always take legal advice before doing so and take time to weigh up the pros and cons carefully. Melanie Bien, director of private finance says: “it’s one thing to rent with friends, which can be traumatic enough, let alone to get a long term commitment such as a mortgage with them.

Statistics show that purchases by three or more people accounted for considerably less than 1% of all first time buyer transactions, totalling no more than a few hundred cases a year.

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