A Joint Borrower Sole Proprietor mortgage enables multiple individuals (usually, but not always, parents of the offspring buying the property) to combine their incomes to help their child get the mortgage they need. Crucially, only the child legally owns the property – the parents, or assistors, are on the mortgage but not on the deeds to the property.
What is a Joint Borrower Sole Proprietor (JBSP) mortgage?
A Joint Borrower Sole Proprietor enables clients who may not be able to borrow enough on their own, have a family member or friend on their mortgage to increase their borrowing potential by combining incomes. This is most common between parents and their children. Although all borrowers are equally responsible for repaying the mortgage, the parents are not the legal owners of the property.
This is important as it avoids the stamp duty surcharge payable if you already own a property which would usually be the case if parents buy with their children as joint legal owners. Once the child can demonstrate to the mortgage lender they can afford the mortgage on their own, the parents can be removed from the loan.
Such is the demand for these products that a growing number of lenders have introduced JBSP mortgages, including some of the bigger names such as NatWest and Barclays. Tom Aydon, Mortgage Adviser at SPF says: “Not all lenders offer them, but we have seen some move into this space as demand from first-time buyers (and parents) grows and they become more popular.”
The challenges with older applicants on the mortgage
One thing to watch out for with a JBSP mortgage is that the mortgage term can be restricted by the age of the oldest applicant. Depending on the lender, some have age limits of between 70 years and 80 years old. “If we are reliant on a parent’s income to make the affordability work, and say they are aged 55, the lender might say that feasibly they can only work to age 75 so that would restrict the term of the mortgage to 20 years,” explains Tom. “Of course, the issue with shorter mortgage terms is that you have higher mortgage payments, which is why a first-time buyer in their twenties will typically take out a longer term of 35 or 40 years in order to make the monthly payments more affordable.”
“Essentially, the JBSP mortgage could been seen like an interim arrangement enabling you to get on the housing ladder and assist in those early years of home ownership when money is particularly tight,” says Tom. “The aim may be to use this as way to purchase the property, with the intention down the line to remove the parents from the loan once you are in the financial position to do so. Clients would have the opportunity to look at this for example when remortgaging at the end of the initial term (for example at the end of 2 years if you are on 2-year fixed rate product).”
Beware of the risks and seek advice
Parents going onto the mortgage need to be aware that although they have no legal ownership of the property, they are still responsible should the homeowner miss a payment. Everyone on the mortgage is underwritten so any missed payments will affect everyone’s credit rating.
That’s why lenders require independent legal advice as a requirement of taking out a JBSP mortgage so that everyone knows what they are signing up to. Tom explains: “Any person who is not going to be a legal owner needs this advice, not from the solicitor handling the legal work for the purchase, but from another independent solicitor. The lender will require a certificate to ensure that Independent Legal Advice has been received.
As one would expect, mortgage products can differ considerably between lenders, so it is important to seek advice from a whole-of-market broker such as SPF Private Clients. “Some lenders will allow up to four people on the mortgage, so a couple could buy together with a parent from each side to combine their incomes. Some lenders only accept family members as joint borrowers; others will consider friends. Some will say the family/friends can’t live in the property, other lenders don’t have an issue with this arrangement. There is no such things as the ‘best’ JBSP on the market – they all have their own quirks and differences,” adds Tom.
If you are considering a JBSP mortgage, then the right advice is crucial. Our expert team at SPF can help you find the best option for your circumstances.
