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If you own a property with someone else and want to take out a secured loan, this is possible but the loan must also be joint. Like with a traditional secured loan, this loan will also be taken out against the property that is jointly owned. As you’re both responsible for paying the mortgage, you’re both liable for the payments, too. This means that if you can’t keep up with the loan repayments, everyone involved is at risk.
You can apply for a secured loan with whoever it is you share your mortgage with. Secured loans on joint mortgages are common with couples, but also family members or friends who share ownership of a property. The only requirement is that you share the mortgage and that you have the consent from the other owner to apply for a loan. It really is that simple!
How does a secured loan on a joint mortgage work?
A secured loan on a joint mortgage works in the same way as a secured loan taken out on a single mortgage. You borrow a set amount of money with your home used as collateral and you pay it back each month over a fixed term. Much like with traditional secured loans, if you fail to meet the repayments, you could risk losing the home.
With a shared secured loan, the amount you can borrow is limited to the total value of your share of the property. So if you own 50% of your home, but only have a mortgage of half of this, you may be able to take out a secured loan against that 25% equity that you have in the property.
How does it differ from a single mortgage?
With a joint secured loan, the names of both owners of the property will be on the loan which means they are jointly and severally liable. If one person can’t or won’t pay, the other person is responsible for the full debt, not just their half.
If you have a shared ownership mortgage with a housing association, you must get their consent before applying for a secured loan. The amount you can borrow here will then be restricted by your share in the property.
What are the advantages of a secured loan on a joint mortgage?
You can borrow more.
With two incomes rather than one, you could borrow a bigger sum of money than with a personal loan because your affordability goes up. You could even benefit from lower interest rates, too.
It could help your eligibility.
As lenders take both incomes into account, your application could be viewed more positively if your mortgage partner has a stronger credit score than you do. Their strong credit score essentially strengthens yours.
You don’t need a good credit score to get accepted.
For similar reasons, a credit score that doesn’t look too hot won’t deter your chances of taking out a secured loan on a joint mortgage.
You could get a longer payment term.
With a secured loan on a joint mortgage, you can spread the repayments over a longer period of time which would make it more affordable to pay back and less risky.
What are the disadvantages of a secured loan on a joint mortgage?
Both parties are jointly and severally liable.
This means that if your mortgage partner is unable or unwilling to pay back the repayments, they will fall to you in their entirety. You will no longer be expected to just pay back your half, but rather the whole debt.
You could risk losing your home.
Just like with traditional secured loans, in the event that neither of you can meet the repayments, your property could be repossessed.
You might pay more interest.
While it is handy to be able to spread the repayments over a longer period of time, this could mean you have to pay more interest and more money overall.
What to consider before taking out a secured loan on a joint mortgage
Remember that applying for a joint loan involves both of you signing a credit agreement. This means you are both taking equal responsibility for all the repayments. If one of you earns more than the other, the highest earner might decide to cover more or all of the repayments. But if something happens that means the highest earner can no longer do this, like a redundancy for example, the repayments will fall to the other person who might not be able to afford them in full. Consider whether both of you could manage the payments alone if this were to happen.
As it is a shared loan, missing a payment towards it affects both of you. If you miss a repayment because one of you cannot pay it, unfortunately this will show up on both of your credit reports. Shared loan means shared responsibility, for better or for worse.
With these risks in mind, it is crucial that you trust the person you intend to share this loan with. If you have any reason to believe they could run into financial trouble, a joint loan might not be the best option.
What happens if the other homeowner won’t give permission for a loan?
With a secured loan on a joint mortgage, both owners need to consent to taking out the loan. If the other homeowner won’t give their permission, you could consider an unsecured personal loan instead. This isn’t attached to your property, nor the other person.
How to apply for a secured loan on a joint mortgage
Think a secured loan on a joint mortgage is right for you and your mortgage partner? Here are your next steps:
1. Get permission from the other homeowner.
Both of you will need to sign paperwork and consent to credit checks.
2. Calculate how much you can borrow.
This will vary from lender to lender and will depend on things like how much equity you have (the difference between your mortgage balance and the current market value of your property), your income and outgoings, and your credit score. A low credit score won’t mean you can’t get a loan, but it could affect how much you can borrow.
3. Check your eligibility.
Use an eligibility checker to see if you’re likely to be accepted for a loan. It’s quick and doesn’t impact your credit score.
4. Check your affordability.
Lenders will check your affordability which will give you an idea of how much they’re willing to lend you, but you also need to look at your finances and assess how much you can reasonably afford to pay back monthly.
5. Speak to a financial advisor.
A secured loan on a joint mortgage is a big commitment, and there are many different lenders out there. A financial advisor will help you find a loan that’s just right for both of you, ensuring you’re eligible and that it suits your situation.
Taking out a secured loan on a joint mortgage is a great way to raise a larger amount of funds and share the responsibility with someone else. Sharing the loan can boost your eligibility and if you apply with someone who has a higher credit score than you do, this will help your chances of getting approved. But it does come with its risks; if one of you cannot make the repayments, the other must foot the bill. And if you both fail to meet them, your property could be repossessed. Remember, you must have the permission of the other homeowner before applying!
FAQs
Can I get a joint secured loan with a low credit score?
Yes. If one of you has a low credit score but the other has a high credit score, the high one will boost the low one as they’re both looked at together. If you both have low credit scores, you can still get a secured loan because lenders will still have confidence that together you can make the repayments. You might find you can borrow less with a low credit score, or that you have a higher interest rate to pay. A financial adviser will be best placed to help you find a good deal in this situation.
Who can get a secured loan on a joint mortgage?
Anyone can apply for a joint secured loan. It could be with a partner, a family member, friend, or even a business partner. The only requirements are that you share a mortgage and you both meet the lender’s criteria for credit history, age, and income.
Will applying for a joint loan hurt my credit score?
Applying for a loan can temporarily affect your credit score, be it alone or with a partner. Once it’s proved that you can manage the repayments, it will bounce back. Just be careful not to make too many finance applications in a short period of time.
