Joint Borrower Sole Proprietor Mortgages
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Darryl Workman shares his expertise on JBSP mortgages, answering some commonly asked questions.
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What is the difference between a guarantor mortgage and a JBSP mortgage?
The main difference is around affordability and who’s actually named on the title deed. With a Joint Borrower Sole Proprietor mortgage you can have 2 – 4 applicants on the mortgage, but only one or two people are named on the title deeds for the property.
With this kind of mortgage, the affordability is based on the combined income of those two to four people, whereas with a guarantor mortgage, the person who’s acting as the guarantor agrees to cover the mortgage payments, should the main borrower be unable to do so. Their income therefore has to be sufficient to support the total borrowing.
For example, if somebody was taking out a £300,000 mortgage, the guarantor would have to be able to afford that £300,000 in addition to any existing borrowing. They might have their own mortgages or other credit commitments in the background. A lot of lenders are moving away from guarantor mortgages because they’re very tight on who can actually afford that type of mortgage.
A common example for a Joint Borrower Sole Proprietor (JBSP) mortgage is where a parent and their child apply for a mortgage together. Both their incomes will be used for affordability calculations, so it’s a lot more flexible and less restrictive in how much lenders will let you borrow. In a way, the JBSP mortgage is a more up to date version of a guarantor mortgage.
There are still some smaller building societies that will do a guarantor mortgage, but bigger high street lenders have moved away from that type of lending. JBSP is a lot more achievable for most people.
How exactly does a JBSP mortgage work?
From an affordability perspective the lender looks at two incomes. It’s the ownership that is the key difference between this option and a standard application.
A common example is a First Time Buyer not quite being able to afford to buy a property in a certain area and therefore asking a parent to go on a mortgage with them to boost their income. The parent and child are both named on the mortgage, but it’s only the son or daughter who is named on the title deeds.
Affordability-wise, this approach boosts your income, but the parent doesn’t have a legal interest in the property. A such, lenders will insist on the parent receiving independent legal advice before proceeding. Outgoings for everyone on the application is also considered when determining affordability.
What criteria do you need to meet for a JBSP mortgage?
It is very similar to any other mortgage. Lenders will look at whether there have been any credit issues in the past, what type of income you’ve got coming in, what’s your residency status, etc.
You will be assessed as anybody else applying for a joint mortgage, with regards to qualifying criteria. Income multiples will be the same.
The main risk is to the person supporting the mortgage application. Where a parent agrees to go on the mortgage, they become liable for the mortgage payments – whether they are paid by their child or themselves.
If for any reason the child wasn’t paying the mortgage and the account went into arrears, that will affect the credit file and history of the parent as well. Also, because they’re not named as legal owners, they have no rights to the property.
Generally, people supporting the JBSP mortgage are encouraged to get independent legal advice so that they understand what they’re signing up to in advance.
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Do you pay stamp duty on a JBSP mortgage?
Typically stamp duty is applicable to the type of transaction. If this is the occupier’s first home, the stamp duty is not applicable because of your status as a First Time Buyer.
Home movers can also take advantage of this type of product, in which case they would pay stamp duty.
In the most common example, where a parent is named on the mortgage, the key benefit of this product is its treatment in relation to stamp duty liability. Because the parent is not named on the title deeds they are not exposed to the stamp duty charges that would normally apply when acquiring a second property or an additional property.
In summary, by taking out a Joint Borrower Sole Proprietor mortgage the occupier pays stamp duty relevant to their situation and scenario.
Can you have a sole mortgage on a joint property?
That is an option, but we haven’t seen that in practice for a long time. Typically lenders will want the mortgage to reflect the ownership. So if you are applying in joint names and using joint incomes, they will want you both named on the mortgage.
We’ve touched on the sole occupier joint mortgage – under the JBSP scheme, not all applicants need or can be named on the title deeds.
What’s the difference between a joint mortgage and a JBSP mortgage?
The main difference is the ownership and who’s named on the deeds. With a Joint Borrower Sole Proprietor mortgage, typically two people are on the mortgage and one on the title deeds. With a joint mortgage, say for a married couple, both are named on the deeds.
What are the advantages of a JBSP mortgage?
The main advantage is affordability. For a First Time Buyer, if they were to buy on their own, the required loan amount would only be based solely on their income. By adding a sibling or parent onto the mortgage with them we can use joint incomes, which boosts affordability.
If you’re working in a profession like law or accountancy there are stepping stones for your income to increase over time. With the Joint Borrower Sole Proprietor option you can afford a higher value property right now. In the future you will have the option to remortgage and remove that parent or sibling from the mortgage, and have a sole mortgage based on your own income.
What else do we need to know about JBSP mortgages?
A key consideration is that when the lender is looking at affordability, they will look at the age of the eldest applicant. So if you’ve got a parent in their 50s, they may only be working for another ten to fifteen years, for example.
If you are looking for a 30 year mortgage term, the lender will want to know how the mortgage will be maintained once the parent is due to retire. They may have a very small pension income. The lender may assess it as not affordable or restrict the term, which would mean much higher payments.
These are the factors to consider compared to getting a mortgage in your own name. If you’re in your 20s, most lenders would offer you a 35 or 40 year mortgage term.
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