Joint borrower, sole proprietor mortgages explained
What is this new type of mortgage I hear you shouting from the stalls?
Well, it’s a way of First Time Buyers increasing the amount available to borrow by including a parent or guardian in an affordability calculation, all whilst not sharing or diluting the ownership of the child’s first home. If you think this sounds remarkably similar to using a Guarantor then you would be right, well, sort of….
What are the benefits?
The main benefit of this type of mortgage product is the ability to borrow more, this is because the parent’s income is taken into account, and more importantly, the parents will not be liable for the additional 3% stamp duty normally applied when buying a second home property.
The lender takes into account the parents’ salary alongside the child’s, increasing their ability to borrow and therefore their options for buying. Projecting forward, the idea is that once the child has started to earn more money and is in a position to take on the entirety of the mortgage debt, they are able to remortgage and release the parent from the joint mortgage. This is important to remember as both parties are applying for the mortgage and are therefore both responsible for the mortgage payments being made every month.
Is it the same as a guarantor mortgage?
The main difference to a guarantor mortgage is that the parent is only putting the mortgaged property at risk as opposed to potentially their other assets (including own home) when acting as a guarantor.
Who does this help?
What situations will a Joint borrower sole proprietorship mortgage be useful?
There are a number of scenarios in which this type of mortgage might be used, we have detailed some of these below:
If an applicants’ income is low:
Many lenders will accept up to four applicants and consider two incomes. A few will accept the incomes of all four.
If an applicant is newly self-employed:
They may not have enough income to cover a sole mortgage.
Applicants with no credit history:
Some people may have no credit history at all, or a low credit score. In this instance adding someone with good credit can help get the mortgage approved.
If the main borrower has bad credit however, adding a joint borrower is unlikely to help just to overcome credit issues (more sensible to consider a specialist bad credit lender)
Things to consider
Things to consider when considering a Joint borrower sole proprietorship mortgage
Before taking out this type of mortgage, we recommend you spend time thoroughly discussing the pros and cons with an experienced mortgage broker who can support you to find a mortgage that best suits your needs and circumstances.
What happens if the relationship breaks down between homeowner and additional borrower?
It can be a difficult process to extract yourself from a JBSP mortgage as the additional borrower / non-legal owner. The fact that a JBSP mortgage was taken out in the first place suggests the legal owner probably can not afford the mortgage on their own. If this is the case a mortgage lender is very unlikely to agree to release the additional borrower from the mortgage. Independent legal advice should always be sought prior to entering into this type of mortgage.
Will being on a JBSP mortgage as an additional borrower affect me going forward?
In short. Yes. If you as the non-owner want to buy a property with a mortgage and take out a new line of credit the total monthly mortgage payments will be included in any affordability calculations. If you remortgage an existing property the same issues with affordability may arise and hamper your previously simple transaction.
How do I get off this mortgage?
I would suggest working out how you will get off the mortgage before entering into a JBSP mortgage (see above for pitfalls). The legal owner may plan on earning enough to support the mortgage on their own, or add a spouse or partner to the mortgage allowing the lender to release you from it.
In the event that the legal owner is unable to keep up with the mortgage repayments as the additional person on your mortgage YOU will also be liable to pay them.
In this case, the legal owner may need to sell the property in question in order to not burden the additional borrower, who would be 100% liable for the monthly mortgage payments in the same way as the legal owner.
Like all types of mortgages there is absolutely a place for Joint borrower sole proprietorship mortgage products. However, as an additional borrower on this type of mortgage we would recommend taking independent legal advice before agreeing to be on a Joint borrower sole proprietorship mortgage, and most importantly be aware of the impact this will have on your own personal circumstances in the future.