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….
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.
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.
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 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.
For help with arranging your mortgage contact your local mortgage broker on 0800 8620 840.
As a first time buyer, life is tougher than it has been for decades. In the 1980s it was still possible to earn a low wage and save to buy your own place. A flat cost maybe three times your salary. An average studio flat cost £30,000, you were paid £10,000 a year, you got a mortgage without much trouble, and it was relatively easy to manage. Now, according to the government's UK house price index, the average UK property costs around £226,000. No wonder most of today's UK first time buyers are around 30 years old.
Just like the old days, you still benefit from saving a decent deposit, maybe 5% or 10%, but that's a lot more money than it used to be when property prices were lower. To buy an average home you need a 10% deposit of more than £22,000, or a 5% deposit of around eleven grand, and that's no joke. At the same time a 100% mortgage is a very rare thing, almost unheard of these days.
There's more. Mortgage providers are more risk averse than they used to be, and they'll make you work hard for a mortgage offer. Unless all your ducks are in a perfect row, with no issues or problems, you can easily be turned down.
All this means that as a first time buyer you've got your work cut out for you, assuming you're prepared for the long haul it involves. Many young people these days have given up and don't bother trying to get on the property ladder. If you live in the super-expensive South East your dream home might even feel like a complete impossibility.
Whatever your situation, you really need to know how much money you can borrow before you start looking at places to buy. Getting in touch with a local mortgage broker is the best way to find out how much you can afford, they’ll guide you through the process and handle the complete mortgage applications.
Luckily there are some handy options available to help you improve your chances of getting on the property ladder. Here they are:
Some of the most popular first time buyer mortgages are joint ones, where you buy a home with other people, for example a good friend, partner, or family member. They might help pay the deposit, or pay part of your mortgage, or add their income to yours so you can afford the kind of place you need. It may mean you and the others own equal parts of the property as joint tenants, or a different amount each, which makes you tenants in common. Either way it's wise to get independent legal advice before taking out a joint mortgage, and make sure you've legally agreed, up front, what happens if one of you wants to sell up or leave. A Mortgage advisor can give you a better idea of how this type of mortgage works.
Shared ownership / help to buy
If you earn less than £60,000 a year a shared ownership mortgage could be just what you need. It means taking out a mortgage on a percentage of the property, while either the government or a landlord owns the rest. You pay low rent on the value of the property that isn't in your name, and you can often buy a bigger share of the property later on, when you can afford it.
Help to Buy is effectively a government equity loan. If you have a 5% deposit saved you can get on the housing ladder by buying a newly-built property. The government lends you as much as 20% of the property value and after five years you begin paying interest on the loan they've provided.
With the help of a guarantor, a trusted person who will pay the mortgage if you can't, you could get a bigger mortgage for your first home than you would otherwise manage. The guarantor in these cases is usually a parent or close family member, and while you don't need to put their name on the mortgage, they will need to sign a legal agreement confirming that they’ll pay your mortgage if you fail to. you do need independent legal advice to make sure everything's boxed off properly and all future potential circumstances taken into account.
Why you need local mortgage brokers
If you live in Kent, for example, find a good local Kent mortgage broker. The property scene is different across the country, cheaper in some places and expensive in others. Different regions have different issues and problems. Local insider knowledge means you can get a better deal, or more choice, or at the very least some valuable insight into the areas you're thinking about buying.
If you need a mortgage agreement in principle or just want to know a but more about mortgages and the options available to you feel free to contact Prospect Tree Mortgages on 0800 8620 840, we are able to help you no matter your location.