Fears of an leap in impaired credit records as a result of mates mortgages has been raised after the British Bankers Association (BBA) and the Building Societies Association (BSA) revealed that around 60 banks and building societies are now prepared to lend to up to four applicants for a single property.
As a result of ever rising house prices, more first time buyers are looking to team up with friends to secure a first step onto the property ladder. But Moneynet.co.uk chief executive Richard Brown advises that buyers need to be confident that all parties have clean credit records.
Brown said: "Unpolished credit records could see them fall at the first hurdle – and all concerned could find they are tarred with the same adverse credit footprint brush. 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 as they become linked ‘by association.’ This could make it hard - even impossible - to secure credit in the future.”
He pointed out that from the mortgage lenders’ point of view, each party to the mortgage is responsible for the entire mortgage debt and monthly repayment. He said: "So whilst you may decide to share the mortgage repayments and each pay a proportion, in the event of one party missing a payment, the lender will look to all other parties to make up the shortfall. In other words, you are all jointly and severally liable for the total mortgage payment - and regardless of the fact that you have paid your share, if other parties have not, the lender will look to you to make up the deficit."
In the worst case scenario, if the mortgage goes into arrears as a result of one party missing their payments, then all parties to the mortgage agreement could find their credit file marked and their credit history adversely affected. Ironing out credit pitfalls in advance is also recommended.
Brown said: "As soon as you buy with someone else, your credit files will become linked to each other by what’s known as financial association. So if one party has a poor credit history then all other linked parties could have their credit history adversely affected by association. It’s sensible therefore to provide one another with a copy of their credit file so that each can check the credit worthiness of the others. Credit reference agency Experian provides copies of credit files at low cost."
