How to Add Someone to Your Mortgage: Key Steps and Considerations
Adding someone to an existing mortgage is a significant decision that can provide financial support and security.
Whether you’re adding a partner, family member, or friend, this process involves legal and financial considerations.
At Kerr & Watson, we specialise in providing tailored mortgage and protection advice to help you navigate this complex process smoothly and confidently.
Reasons for Adding Someone to a Mortgage
Financial Assistance
One of the primary reasons for adding someone to a mortgage is to share financial responsibilities. With rising living costs, having an additional income can ease the burden of mortgage payments, utilities, and other household expenses.
Relationship Changes
Life evolves, and so do relationships. If you’ve entered a committed partnership, adding your partner to the mortgage can provide them with legal rights to the property. This step is often crucial when they contribute financially or when children are involved so treading carefully is recommended.
Estate Planning
In some cases, adding a person to a mortgage can be part of estate planning, ensuring that a loved one has a stake in the property. This can be especially relevant if you’re considering long-term arrangements for property inheritance and have taken the correct advice.
Is Adding Someone to a Mortgage a Good Idea?
Benefits
- Shared Financial Responsibility: Splitting the mortgage payments can make managing finances easier.
- Legal Rights: Provides legal ownership and rights to the added person.
- Potentially Improved Mortgage Terms: A second income might improve mortgage terms, potentially lowering interest rates if you qualify for different lenders.
Considerations
- Loss of Ownership: You may lose a portion of your property’s equity, especially if you’ve invested significantly more initially. Speaking with a qualified adviser is strongly recommended.
- Credit Association: The new person’s credit history will become linked with yours, affecting future borrowing potential.
- Legal Implications: Changing ownership structures can have tax and inheritance implications so only do this once you have spoken with the appropriate experts.
How to Add Someone to Your Mortgage
Approach Your Existing Lender
You can approach your current lender to request an equity transfer. The lender will assess the new person’s eligibility, which involves income and credit checks. Be prepared for potential processing fees and the possibility that the request may be denied based on the new person’s financial situation.
Remortgage
If your current lender does not approve the addition, remortgaging with another lender is an option. This process involves securing a new mortgage, which will require a full application, including property valuation, income verification, and credit checks. It’s advisable to consult a mortgage broker to compare offers and find the best terms. A mortgage broker will be able to assist you with this.
Legal and Financial Considerations
Types of Tenancy
When adding someone to a mortgage, it’s crucial to decide on the type of tenancy:
- Joint Tenancy: Both parties have equal rights to the property. In the event of death, the property automatically passes to the surviving owner.
- Tenants in Common: Ownership can be split unequally. Each owner can pass on their share of the property through their will.
Legal Advice
It’s essential to seek legal advice to understand the implications fully. A solicitor can assist with drafting or updating a deed of trust, outlining each party’s rights and responsibilities. They can also advise on potential tax implications, such as Stamp Duty and inheritance tax.
Credit and Financial Considerations
Adding someone to your mortgage creates a financial association, impacting both parties’ credit ratings. It’s important to consider the other person’s credit history, as it can influence your ability to secure future loans.
Potential Challenges
Early Repayment Charges
If you are in a fixed-term mortgage, adding someone may trigger early repayment charges. It’s essential to calculate whether the benefits outweigh these costs. In some cases, waiting until the fixed term ends may be more economical. A mortgage broker will be able to calculate this for you and make a recommendation.
Impact on Existing Benefits
Adding someone to your mortgage could impact any benefits or tax relief you currently receive. Consult with a financial advisor to understand these implications fully.
Conclusion
Adding someone to an existing mortgage can provide financial relief and legal security, but it requires careful consideration of various factors, including legal implications, financial responsibilities, and potential risks.
At Kerr & Watson, we are dedicated to providing expert mortgage and protection advice, ensuring you make informed and confident decisions.
