Today around sixty banks and building societies offer panicked first-time buyers these types of mortgages to help them get a leg up onto the property ladder, however all first-time buyers considering a move such as this should really know what theyre getting themselves into.
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It is a common credit myth that the people you currently live with or the previous owners of your home have an impact upon your own credit rating, however those with whom you enter into a financial partnership such as a joint account or a mortgage do affect your own credit rating.
Richard Brown, chief executive of Moneynet.co.uk advised: Unpolished credit records could see first-time buyers fall at the first hurdle and all concerned could find they are tarred with the same adverse credit footprint brush.
Its crucial for all applicants to get their credit record 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.
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Some lenders, for example, will only take the two highest incomes into account whereas others may take up to four incomes or just look at the overall affordability of the group as a whole. Lenders that will take all four incomes into account include Britannia, HSBC and Skipton, but it may be worth speaking to a mortgage adviser who can do the shopping around for you and negotiate with the lenders on your behalf.
The other important factor which all parties must seriously consider is that, as a group, everyone is jointly liable for the mortgage repayments. This means that if there is a shortfall after one party cannot pay their share of the mortgage, the lender will look to the others to make it up and it will impact upon everyones credit history accordingly.
When entering into such an agreement with friends then it is important to take every possible scenario into account. One of the biggest potential areas for discussion prior to making any mortgage application is a change in circumstances. All parties need to know what would happen in the event of a change in circumstances be this because one person wants to move in with a partner or get married, or in the unfortunate event of long term illness or redundancy. A commitment such as a mortgage is not to be taken lightly and it is imperative to have a proper agreement drawn up after consultation with a solicitor.
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All parties also need to be covered against accident, sickness and unemployment to ensure they will not default on their payments and send the mortgage into arrears if any unexpected or unwanted situations arise.
Finally it is of great importance that an agreement is drawn up detailing the relative ownership of the property as initial deposits may vary alongside the percentage share of the monthly mortgage repayments. You need to know what will happen in the event of one or more of the parties going their separate ways, whether this be selling up or one person buying another out.
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