Joint-borrower-sole-proprietor mortgage (often abbreviated as JBSP) enables two or more individuals to purchase a property together, with one person holding ownership. This arrangement is particularly beneficial for parents or family members who wish to assist someone in buying a home without becoming co-owners.
Unlike guarantor mortgages, JBSPs do not require family members to provide savings or guarantees for a deposit. Instead, the income of all parties involved is assessed, making it easier to qualify.
Growing Availability of JBSP Mortgages
The good news is that an increasing number of lenders are offering JBSP mortgages with competitive rates comparable to standard mortgages.
What Is a JBSP Mortgage?
A JBSP mortgage allows up to four individuals to buy a property, with only one person listed as the owner. This option is commonly utilized by parents helping their children enter the property market, but can also be a solution for siblings or friends pooling their incomes to purchase a home.
All borrowers share the responsibility for mortgage repayments, which can lower lenders’ risk. However, this shared responsibility means that if one party cannot make their payments, the others must cover the total. Therefore, it’s crucial to enter into this agreement with someone you trust and understand financially.
Notably, the non-proprietors are not listed on the title deeds and have no legal claim to the property or its appreciation in value. This type of mortgage can empower individuals to secure a home or upgrade to a larger property.
How a JBSP Mortgage Works
A JBSP mortgage operates similarly to a standard mortgage. Lenders evaluate all borrowers’ financial situations, including income and expenses, to assess affordability.
Borrowers must satisfy specific criteria, such as age limits and creditworthiness. Some lenders impose an age limit of 70 or 80 years at the mortgage’s end. It’s important to note that missed payments can negatively impact all borrowers’ credit scores.
The key distinction with a JBSP mortgage is that only the named proprietor appears on the property deeds. Lenders typically require this individual to reside in the property. This arrangement allows family members to assist loved ones without maintaining a long-term interest in the property.
Additionally, JBSP mortgages can provide advantages regarding Stamp Duty. Generally, purchasing with someone who already owns a home triggers a 3% Stamp Duty for second homes. However, with a JBSP mortgage, additional borrowers can avoid this liability.
When the initial mortgage term concludes and early repayment charges no longer apply, the sole owner has the option to transition to a mortgage solely in their name.
JBSP vs. Joint Mortgages
The primary difference between a JBSP mortgage and a joint mortgage is ownership. In a joint mortgage, all borrowers are co-owners listed on the title deeds and responsible for paying Stamp Duty. Conversely, in a JBSP mortgage, not all borrowers hold ownership, but they still share responsibility for the loan.
Pros and Cons of JBSP Mortgages
Advantages
– Family members can assist in purchasing a home.
– Sole proprietors can assume the mortgage when financially capable.
– No Stamp Duty liability for additional borrowers.
– Potentially quicker access to homeownership.
– Wide variety of mortgage loan-to-value (LTV) ratios and terms available.
Disadvantages
– Joint responsibility for repayments among all borrowers.
– Lenders may restrict residency to the property owner.
– Not compatible with other housing schemes like Help to Buy.
– Older borrowers might limit the mortgage term.
Before applying for a JBSP mortgage, consider these important steps:
1. Seek Indpendant Legal Advice: Entering into a mortgage without property rights is significant. Legal advice is essential, and some lenders may require it before proceeding.
2. Plan for the Future: Discuss how non-proprietors will exit the mortgage and establish a plan for any payment issues that may arise.
3. Obtain Insurance: Consider mortgage payment protection or income protection insurance to cover repayments in case of job loss or illness.
4. Explore Other Mortgage Types: A JBSP mortgage is one option, but other types, such as guarantor mortgages or housing schemes, may better suit your situation.
Lenders Offering JBSP Mortgages
Not all lenders provide JBSP mortgages, but several reputable banks do and the number of lenders entering the market are expected to grow.
If income is a barrier to securing a traditional mortgage, a JBSP mortgage could be beneficial, especially if close family members are willing to assist. However, other challenges, such as poor credit history, may complicate your eligibility.
At Highfields we can carefully package and present the application for JBSP mortgage ensuring that a get it right first time approach is made.
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