Joint Borrower Sole Proprietor Mortgages
Chris Simms from The Mortgage Store joins the Mortgage and Protection Podcast to talk us through Joint Borrower, Sole Proprietor (JBSP) Mortgages.
What exactly is a JBSP mortgage?
A joint borrower sole proprietor mortgage is quite a niche product – it’s not that well known. But it’s a great way for parents, guardians, friends or family to support people who are trying to get on the housing ladder.
It allows multiple applicants for a mortgage. Some lenders will allow up to four people to apply for the mortgage, based on the joint income from all of those applicants.
All of them take on the liability for the mortgage loan as joint borrowers. But with regards to owning the property, the sole proprietor (or proprietors, if it is a couple) will legally own the property and be named on the deeds. The supporting borrowers can’t live in the property. That’s a common legal clause on this kind of application.
How do JBSP mortgages work?
The general concept behind this type of mortgage is to help someone get on the property ladder – someone who might otherwise struggle based on their current income and savings.
It’s a good option for anyone who perhaps doesn’t have the affordability right now for a mortgage, but who will be able to afford the repayments in the near future. An example is someone who is new to employment or a graduate – their income potential is there.
Usually there is a plan that they will take on the mortgage now or in the near future. On that basis, we commonly look at a two-year fixed interest rate option. After two years, the proprietor can take on the mortgage themselves, and the joint borrower can be removed from the mortgage.
Something to remember is that the term of the mortgage will be based on the eldest applicant’s age, with a maximum of age 80 in some cases – but more commonly it’s 70.
Do you pay stamp duty on a JBSP mortgage?
Normal stamp duty liability only applies to the proprietors. They are the legal owners of the property and named on the deed.
The benefit of a JBSP mortgage is to the supporting borrowers. They are usually homeowners themselves, so a standard mortgage would expose them to an additional 3% in stamp duty liability.
Can you have a sole mortgage on a joint property?
Some lenders do allow this, but it’s fairly rare. Generally, most lenders will insist on the proprietor or proprietors named on the mortgage being the same as on the deeds.
What’s the difference between a joint mortgage and a JBSP mortgage?
A joint mortgage is a much more standard arrangement where you borrow money on a mortgage to buy a property with someone else, usually your partner, a relative or a friend. Both parties are liable for both the mortgage payments, both have a legal claim on the property and both are on the deeds.
With a joint borrower sole proprietor set up, the joint borrower accepts liability for the mortgage payments, but they don’t have any legal claim to the property at all.
What’s the difference between a guarantor mortgage and a JBSP mortgage?
Guarantor mortgages are few and far between these days, as JBSP mortgages are becoming more popular and more available.
A guarantor arrangement is generally when a parent acts as a guarantor, which means they become liable for the mortgage payments if their son or daughter falls into arrears – that is, they can’t afford to repay the mortgage. Meanwhile, with a JBSP arrangement, the parent agrees to take joint liability from the start. Either way, they have no legal claim to the property.
Many lenders that used to offer guarantor applications don’t accept these anymore, and instead point applications towards the joint borrower sole proprietor proposition.
What are the pros and cons of a JBSP mortgage?
The main benefit of a JBSP mortgage is that a joint borrower on a higher salary can support somebody with a lower or zero income to get a mortgage. It’s about enhancing affordability.
It’s also better from a stamp duty liability point of view. The JBSP is generally aimed at first time buyers, which means there is no stamp duty liability on a property worth up to £300,000.
In terms of the downsides of a JBSP, I haven’t personally come across this, but there are some risks if the relationship were to break down between the homeowner and the joint borrower. That could be difficult. If you wanted to be removed from a mortgage, you’re looking at a costly and lengthy legal battle, so a JBSP mortgage shouldn’t be taken lightly.
Most lenders insist on all borrowers seeking independent legal advice before signing up.
Where can I get more information?
As with any mortgage it’s important to speak to an adviser to fully understand all the details. We’ve got access to most of the mortgage market and work with a comprehensive list of lenders – plus we have expert knowledge and insights into lending criteria and affordability.
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