Our Guide to Joint Borrower Sole Proprietor Mortgages
Few people will be unaware of the difficulties faced by some potential buyers in the UK Property market over recent years.
High property prices, lenders requiring higher deposits and tighter control of borrowing versus income have all meant that times can be tough for certain categories of buyer. That particularly applies in the case of younger first-time buyers.
Fortunately, a new approach called joint borrower sole proprietor mortgages or JBSP has been developed to help.
Here is our summary of the key characteristics of this new approach.
Next steps – joint borrower sole proprietor mortgages
What are joint borrower sole proprietor (JBSP) mortgages?
At face value, these appear to be complicated but in reality, they are quite straightforward.
It might be best illustrated by considering a typical situation – that where a young first-time buyer has an income that is too low to generate sufficient mortgage sums to buy a property based upon standard income multiples.
At one time, that younger person may have turned to their parents for assistance. That might have been in the form of a cash injection or in some cases, the parents acting as guarantors for a higher sum.
However, recent taxation changes have made that option less appealing, so both parents and lenders have been looking for alternative approaches.
Joint borrower sole proprietor mortgage lenders offer a product that simply includes another person’s income, perhaps of the parent in this example, as part of the overall maximum lendable amount calculations for the primary applicant. What this means is that the sum advanced as a mortgage is based upon perhaps two, three or even four incomes rather than just one.
That, in itself, is not unusual, as joint mortgages are nothing new, but JBSP is radically different. That’s because the second income used in the calculation does not result in that contributing individual being included on the property’s deeds of ownership.
Well, the big advantage of this both to the property purchaser and to whoever is assisting them to achieve the required mortgage level, is that in many circumstances this will not count as a second property purchase for the assisting income provider. That means no stamp duty will be payable under second home purchase auspices (in qualifying circumstances).
Other current incentives and taxation advantages for first time buyers will still apply.
It is worth noting that if the person who is jointly on the mortgage but not on the legal title deed is a spouse or civil partner and owns another property which they are not selling to buy the new property, then second home stamp duty typically WOULD BE payable.
Are joint borrower sole proprietor mortgages purely for first time buyers?
Although illustrations of how they work are often cited in the context of first time buyer examples, there is no such restriction.
For example, if two people were trying to purchase property using this type of mortgage provision and one of them already owns another property, they may wish to keep the existing property-owning contributor’s name off of the deeds to avoid stamp duty.
However, the specific taxation issues as a might apply in a given application can be complicated and are best discussed with the exact facts on the table.
What term can the mortgage be taken over?
While the term and other product features vary depending on the lender, in some cases this type of mortgage can be taken out up to a maximum age at the end of the mortgage term of 80 years of age.
That means that the repayments can be spread over a longer period and therefore be lower, on a monthly basis, than the traditional mortgage terms of 20 or 25 years.
How many applicants can be considered?
It’s possible to use up to four incomes to support a single mortgage application in the context of this type of product.
Are joint borrower sole proprietor mortgages only for residential products?
No. Again, although many examples use residential situations as their focal point, in fact, this type of mortgage may also be available in buy-to-let situations.
What do I need to bear in mind with a JBSP mortgage?
It is important for the person agreeing to support a mortgage application whilst not taking any share in the title of the property, to realise a number of key factors about the responsibility they are undertaking:
- in any event, where the principal borrower defaults on the loan, you will be held liable with them for the recovery of any debts. The fact that your name does not appear on the title deeds will not affect your liabilities in that respect at all;
- your debt liabilities here would need to be declared in situations where you were applying for other loans, even if the primary mortgage holder and property owner were normally meeting all mortgage repayments entirely from their own sources each month;
- to take on what may be a very substantial debt without having any legal rights over the asset it is secured against, might be a significant risk. Having total trust and confidence in the primary mortgage borrower (and legal property owner) is obviously of paramount importance but you may also wish to consider taking additional legal steps, such as a deed of trust, in order to protect your interests;
- even as a second applicant, joint borrower sole proprietor mortgage lenders will require you to pass things such as income and affordability qualifications. You will also typically need to meet the criteria of the credit reference check.
Next steps – joint borrower sole proprietor mortgages
Joint borrower sole proprietor mortgages are very new and potentially highly beneficial for certain categories of mortgage applicants.
The way they operate can take a little getting used to and this is where we will be only too happy to offer our assistance in explaining them in a little more detail.
Why not contact us at your earliest convenience for a further discussion?