Lee and Neezam talk through Joint Borrower Sole Proprietor mortgages.
What is a Joint Borrower Sole Proprietor mortgage (JBSP) and how do they work?
When you’re applying for a mortgage most banks and building societies will want the mortgage applicants to be named on the property deeds. So with a joint mortgage for a couple, the lender wants both borrowers to be the owners of the property. That keeps things simple and protects the bank or building society should they ever need to repossess the property.
A Joint Borrower Sole Proprietor mortgage is slightly different – it allows you to have different names on the mortgage and on property documents. Imagine a 21 year old man isn’t able to borrow the amount he needs to buy a home, but his dad wants to help him get on the property ladder. Dad can come onto the mortgage with him. With a JBSP they’ll both jointly be liable for the mortgage funds, but only one person (the son) is the ‘proprietor’ – the owner of the house.
What criteria do you need to meet for a JBSP mortgage?
The only other main caveat is that the joint borrower – the person supporting the mortgage application – generally needs to be a relative.
The great benefit about Joint Borrower Sole Proprietor mortgages is that they are a big help to first time buyers. Generally speaking, the usual situation is for a son or daughter to get the mortgage together with mum or dad. It can be stepparents, too.
Most people are eligible for a JBSP mortgage as long as you don’t own any other properties. You don’t necessarily have to be a first time buyer.
Do you pay stamp duty when buying a property with a JBSP mortgage?
For a first time buyer, there is no stamp duty on properties worth up to £425,000. That’s important, because with a Joint Borrower Sole Proprietor mortgage, stamp duty is payable by the person owning the property.
With our example of a son and a dad buying together, the son’s a first time buyer but the dad owns a residential property. If they were both named on the deeds then, because dad is an existing property owner, he will have to pay stamp duty and at a higher rate, as he’s buying a second home.
With the JBSP mortgage, because Dad isn’t named on the deeds he’s not liable for stamp duty. And if the property costs less than £425,000 the son won’t have to pay any duty at all.
Can you have a sole mortgage on a joint property?
This is where one person is responsible for the mortgage but two people own the property and are named on the deeds. Most lenders don’t allow that. Generally speaking, both borrowers would need to be named on the mortgage.
There may be one or two building societies that would consider it. It’s unusual, but if it’s something you’re interested in, speak to a broker.
What’s the difference between a joint mortgage and a JBSP mortgage?
A joint mortgage is the usual way for a couple to buy a home. Both applicants are named on the mortgage and on the deeds, and are jointly responsible for repaying the mortgage debt.
With a Joint Borrower Sole Proprietor mortgage, two people are named on the mortgage but only one of them legally owns the property and is named on the deeds.
With a JBSP mortgage, the lender will insist on the person borrowing for the funds fully understanding the legal implications of borrowing for an asset that they’re not going to own. In the worst case scenario, they’re liable for the debt but don’t actually own the home.
Banks and building societies therefore ask the person that won’t be on the deeds to seek independent legal advice. That’s something a broker can help you with – we can connect you with an appropriate solicitor to do that. It’s essentially confirming in writing that you understand the implications and are happy. It’s a small added cost to a JBSP that can also lengthen the timescale slightly.
What’s the difference between a guarantor mortgage and a JBSP mortgage?
Generally, JBSP mortgages are taking over from guarantor mortgages. Not many lenders offer a guarantor mortgage these days. There’s not a great deal of difference between the two – both are designed to allow someone to support their family member to buy a home.
That said, a lot of clients in this situation do ask about guarantor mortgages – and what we will do is explain how a JBSP works and take it forward from there.
What are the pros and cons of a Joint Borrower Sole Proprietor mortgage?
The main advantage is that these mortgages can help someone who wouldn’t qualify for a mortgage on their own. It’s about being able to use your income, plus your relative’s income, to help you get a bigger mortgage. With property prices going up all the time, it’s hard enough to save up a deposit.
We see a lot of people who have saved for a deposit who then realise that they still can’t borrow what’s needed to buy a home in their area.
One of the potential drawbacks of a Joint Borrower Sole Proprietor mortgage is that banks and building societies will often set a maximum borrowing age, which applies to the eldest applicant. Imagine the son in our example is 21 and his dad is 50. A lot of lenders will cap the maximum age for mortgage borrowing at 70, which means that their maximum mortgage term will be 20 years.
Quite often the person helping is older than that, making the maximum term perhaps just 10 or 15 years – and that can affect affordability. So while you’ve now got more than one income, you can’t stretch the borrowing over a longer period of time, so you have higher monthly repayments.
Borrowing, say, £200,000 over 15 years as opposed to 30 or 35 years will mean the monthly repayments are a lot higher. But there are ways around that. We can recommend ways to maximise your term and recommend lenders with higher age limits. Some lenders are happy to explore the elder applicant’s pension projections, to lend past the age of 75 or even 80.
How can a broker help?
This is a niche and specialist area. With these mortgages, getting advice is really important. As brokers, we understand which banks offer this type of arrangement and the pros and cons to consider.
There are also a few obstacles to navigate and hoops to jump through including independent legal advice, stamp duty and proving your income. So having that conversation as early as possible with someone like ourselves will really help.
We’ll explore your options and make recommendations about the best way to achieve your goals. Something that crops up sometimes is that Joint Borrower Sole Proprietor mortgages can’t be used to avoid stamp duty. You might think that when there are two people wanting to buy a home, one a First Time Buyer and the other a home mover, they can put the home in the first time buyer’s name and avoid that duty. But these mortgages don’t work like that – lenders won’t allow it.
There are a few challenges with JBSP and not many lenders offer it, so making sure that you get that advice is really crucial. Generally, though, JBSP is a good solution to get you a bigger mortgage. Where it’s really used well is for someone that is, for example, a trainee accountant or a junior doctor. They’re in a role where their income starts quite low, but will increase significantly as they progress through their career. At some point in the future, they can take over the mortgage debt on their own and remove the joint borrower from the loan.
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