A Joint Borrower Sole Proprietor Mortgage (otherwise referred to as a JBSP mortgage) is a mortgage product that enables a family member (usually a parent) to contribute financially to a mortgage without assuming any ownership of the property.
Primarily used as a way of helping young people to get onto the first rung of the property ladder, a JBSP mortgage can assist in securing a mortgage and potentially increase the borrowing scope, too.
JBSP mortgages allow individuals to accept the financial support of their family, while retaining a sense of independence through sole ownership of the property.
Who needs a JBSP mortgage?
There are various circumstances that could result in someone needing a JBSP mortgage.
Common reasons include:
- Low income - if the primary applicant's income isn't sufficient to secure an income, they may need family assistance but wish to retain full ownership.
- Low credit score or no credit history - someone with a low credit score may struggle to secure a mortgage on their own, and this can also be the case for individuals with no credit history at all, as is often the case with young borrowers.
- Newly self-employed - without sufficient verifiable self-employed income, an individual may need support to obtain a mortgage before they become eligible in their own right.
Related: Transferring Ownership of Property from Parent to Child
What's the difference between a JBSP mortgage and a joint mortgage?
A joint mortgage is one in which you buy a home jointly with someone else - be it a relative, friend, or partner - and you share both the ownership and the financial responsibilities. Therefore, both parties are responsible for repaying the mortgage, and both have a legal claim to the property ownership.
Alternatively, with a JBSP mortgage, the other applicant (usually a parent) takes on joint responsibility for the debt and repayments, yet has no legal claim to ownership of the property.
JBSP mortgages are not the same as guarantor mortgages
The only way in which a guarantor mortgage is similar to a JBSP mortgage is that the parents have no legal claim to property ownership in either.
With a guarantor mortgage, parents only assume responsibility for the debt if their son or daughter can no longer meet the repayments. Conversely, with a JBSP mortgage, they agree to contribute towards the mortgage repayments from the beginning.
Does the second borrower have to be a relative?
Not in every case. While most lenders only accept parents or family members as second applicants, some do not restrict what relationship the applicants have with one another.
Some couples wanting a buy-to-let property can use a JBSP mortgage to their advantage if one partner has a significantly lower income than the other. With a JBSP mortgage, the partner with the larger income can contribute to the mortgage repayments, while the property ownership and any rental income remain in the name of the partner with the lower income. By doing this, couples can legally reduce their combined tax bill.
Are JBSP mortgage rates different from standard mortgages?
Typically, no. Most JBSP mortgage products are offered at the same rates as traditional mortgages, although it is always important to shop around for the best deal. There are a limited number of lenders that currently offer a JBSP mortgage, but it's still important to do some research and compare, or consult with a mortgage broker who can steer you in the right direction.
How do JBSP mortgages work?
Typically, a lender will consider up to four applicants for a single JBSP mortgage, although this figure can differ between providers. Usually, only two incomes will be formally considered, with any others only being taken into account as additional financial guarantees.
Some other stipulations include:
- The primary borrower typically must reside at the mortgaged property, while the secondary applicants must not
- The maximum age that a supporting borrower can be at the end of the mortgage term differs between lenders, falling somewhere between retirement age and 80, depending on the lender, although many remain strict on this criteria, and older parents may struggle to get approved
- Gifted deposits are acceptable from other family members if necessaryAny type of residential property can be eligible for a JBSP mortgage
- Lenders will often want to be satisfied that the property owner can and will in time be able to take over the repayments themselves.It may be necessary for them to demonstrate that their income is likely to increase over time
How much could I borrow with a JBSP mortgage?
Of course, this will vary between applications as well as differing lender criteria. Typically, a JBSP mortgage will allow up to four applicants, and most lenders will cap your potential borrowings to 4.5 times the combined income. However, some lenders may offer more, and it could make all the difference if you consult with a broker to help find the right lender for your needs.
The pros of a JBSP mortgage
Of course, the stand-out advantage is that a JBSP mortgage enables a young adult to secure their own property and mortgage with family assistance while retaining a sense of independence through sole ownership. Furthermore, they can take over the mortgage once they have the income to support it alone.
They can also accept family assistance when putting up a deposit. The amount of deposit required will differ between lenders, but minimum deposits are typically between 15-20% and are challenging for many young people to save up.
Another advantage of a JBSP mortgage over a joint mortgage is that it allows the parent to avoid any additional stamp duty charges. Usually, second property purchases incur a 3% stamp duty surcharge, but this is not applicable for JBSP mortgages.
JBSP mortgages also allow borrowers to access mortgages for any residential property style - unlike the government-based Help to Buy scheme that confines buyers to new build properties.
The cons of a JBSP mortgage
There is no real downside for the youngster getting a leg up onto the property ladder. The only difficulty may lie in finding one, as JBSP mortgages are a specialty product that remains relatively niche and hard to come by. They may become more widely available in time, but for now, there is a limited number of lenders who offer them.
For the parent or other applicant, the risk of having to cover 100% of repayments is real should the proprietary owner not be able to pay towards it.
JBSP mortgages are not intended to be indefinite. The idea is that the product allows someone who would otherwise struggle to secure a mortgage. Once they are able to take full responsibility, the legal owner should ideally remortgage into their sole names and relieve the secondary applicant from the legal and financial burden.
Not only can this take longer than anticipated, but sometimes, a breakdown in the relationship between the parties can occur, leading to a problematic situation for all. It may be difficult or impossible for the parent or other applicant to remove themselves from the mortgage, as the lawful property owner may still not be in a position to secure a solo mortgage.
These circumstances can result in some highly contentious family issues and the potential for expensive legal battles. Everyone must enter into these contracts with their eyes wide open to all possibilities.
Using a JBSP mortgage to protect your assets
Should their business venture fail, many business owners choose to use a JBSP mortgage to protect their home from being seized.
With a JBSP mortgage, a business owner can put their property in their partner's name and only take the position of joint borrower, thus keeping the property separate from any other assets. This tactic can work, however, many lenders stipulate that the borrower who doesn't legally own the property cannot reside in it, so it isn't always feasible.
What alternatives are there to a JBSP mortgage?
JBSP mortgages are a great fit for some, but not in every case. Alternatives to consider include:
- The bank of mum and dad - you could simply borrow money from parents, relatives, or friends for a deposit to assist you in getting on the property ladder, but be sure that you all agree to the terms to avoid any relationship breakdowns
- Shared ownership - under a shared ownership scheme, you can buy a share (typically between 25% and 75%) of the property and make rent payments on the remainder. From there, you can increase your ownership share through a process called 'staircasing.' Until you own 100% of the property, however, restrictions will apply in terms of what you can do with it, for example, letting the property out. It is also usually more complicated to sell a shared ownership home if you decide to move on before owning 100% of it
- Tenant-in-common mortgage - if two or more people want to buy a property together, they can use a tenants-in-common mortgage. Each individual share does not have to be equal, but each party takes on both the debt obligation and a legal claim to property ownership
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