Joint borrower, sole proprietor mortgages (JBSP mortgages) are growing in popularity, as buyers find it difficult to purchase a home at today’s property prices.
In essence, one person buys the property as a residence – they are the proprietor.
Another borrower, normally a parent, joins the application process to add their income and financial assets to the affordability assessment.
First-time buyers, in particular, often choose a JBSP mortgage if they have a low salary, which means they do not qualify for a mortgage of any viable value!
JBSP mortgages can also be a short-term solution for applicants expecting an increase in their earnings or working on improving their credit score to become eligible for an individual mortgage product.
Joint Borrower, Sole Proprietor Mortgages Explained
These mortgages are ideal for applicants who want to buy a property but do not have the financial means or a high enough annual income to qualify for the mortgage they require.
A trusted person – typically but not necessarily a parent – can support the application without being named on the title deeds, so the original applicant has no dilution of ownership.
Mortgage lenders need to run through affordability assessments to establish:
- How much the applicant earns per year, and whether their maximum multiple of that income would allow the mortgage value requested.
- Credit report issues and any default history that makes a mortgage higher risk.
- Debt to income ratios – looking at pre-existing liabilities and the monthly obligations.
The purpose is to ensure that a mortgage offer is only made where the applicant can afford the repayments and is unlikely to fall behind.
If you scrape past with your income but have a relatively low salary, a lender might still reject your mortgage application when they factor in additional homeowner costs such as property maintenance and insurance.
How Do Joint Borrower Mortgages Work?
JBSP mortgages incorporate both your income and your parent’s salaries or earnings (assuming they are the joint borrower) in the affordability assessment.
Some lenders will even accept up to four applicants on one mortgage.
Say you make £15,000 – a lender with a maximum cap of 4.5 times your annual income could, potentially, offer you up to £67,500, which would be a low amount to try and purchase a property with.
If you have a parent supporting you, with a salary of £20,000 per year, the lender will calculate the mortgage cap on your combined £35,000 earnings – resulting in a maximum mortgage offer of £157,500.
Add a second parent with a similar salary to the same application, and you grow your possible borrowing limit to £247,500.
Of course, that is not the end of the evaluation process, but it showcases the JBSP mortgage principal and why they are such appealing borrowing products for first-time buyers and low-income applicants.
Who Can Support a JBSP Mortgage Application as a Joint Borrower?
As we mentioned earlier, JBSP mortgages are most common for a first time buyers, buying a home with support from a parent – but that is one of many solutions.
Although some banks and mortgage lenders may have internal policies that limit the parties they will accept on a joint borrower mortgage, this can usually be:
- Close relatives
The thing to bear in mind is that your joint borrower will be included on the mortgage, although not the deed.
They cannot sell the property but are liable for the payments owing on your mortgage product. If you fail to make repayments, the joint borrower(s) will be called upon to settle outstanding balances and could experience a negative impact on their credit record.
Therefore, it is strongly advised that any prospective applicants seek independent mortgage advice to ensure they are fully aware of all the pros and cons before proceeding.
The Advantages of a Joint Borrower, Sole Proprietor Mortgage
The core advantage of JBSP mortgages is that they make it much easier for new buyers to qualify for a reasonable mortgage value and save a sufficient deposit.
While there are 90% and 95% mortgages out there, this high Loan to Value ratio depends on meeting several other qualification criteria and normally means paying higher interest rates and arrangement fees.
In the UK, the average house price is around £278,000, and £523,000 in London (March 2022), with a national average salary of £25,971 in 2021.
An individual with a regular, stable job at the national average could:
- Buy a property worth £103,884 if the lender offers four times their income.
- Purchase a home at £116,870 based on an offer of 4.5 times earnings.
- Apply for a mortgage of £129,855 with a lender offering a more generous five times their salary.
It would be tough to find a home at these values in most parts of the country, particularly in larger cities and the capital.
Therefore, a JBSP mortgage means that parents can contribute towards the deposit to boost the down payment value and then help with the monthly repayments to ensure their child can buy a home.
If your parents or other family members have higher salaries and are comfortable offering this support, it means you can proceed without worrying about additional Stamp Duty charges.
The joint borrower is not on the deeds, so the second home surcharge does not apply.
Pitfalls of Applying for a JBSP Mortgage With Parents
The downsides centre on financial risk.
If the mortgage falls into a default position, the financial link between the applications as co-signers on a debt means this will have an impact on the joint borrower’s credit record.
If a joint borrower plans to take out any credit themselves, such as a remortgage or second home mortgage, they may find it harder to qualify for the credit given the larger debts assigned to their credit file.
JBSP Mortgages vs Joint Mortgages
Although they might sound like similar products, a JBSP mortgage is very different from a standard joint mortgage.
Joint mortgages mean that both applicants apply together as co-owners, with a legal right to the property.
JBSP mortgages differ because the supporting borrowers are included in affordability assessments but are not given legal homeownership rights.
If the parent or supporting family member owns property already, a joint borrower mortgage may be preferable since this will not impact access to the higher Stamp Duty threshold for first-time buyers.
The supporting borrower will be asked to sign a declaration stating they have no beneficial interest held in the home to confirm this.
Joint Borrower, Sole Proprietor Mortgages in Bad Credit Scenarios
Many people have little credit history if they have not taken on any borrowing before or could have a bad credit rating that impedes their ability to apply for mortgage products at more competitive rates.
Bad credit mortgages can be appropriate if you have severe credit issues, which a mainstream lender will not consider, but interest rates are often higher, and the fees can be costly.
JBSP mortgages are an alternative because the supporting borrower’s credit record and income are considered during the assessment process.
First-time buyers with adverse credit can find it challenging to qualify for a mortgage, so they may substantially improve their prospects by applying with a parent who has a solid income and a good credit record.
One option is to build an improved credit score over time by making mortgage payments promptly and paying down other debt.
Most credit issues (including IVAs, CCJs, late payments, and defaults) are cleared from your credit report in six years.
You could, therefore, consider a JBSP mortgage during that time, showing good financial management until your adverse credit reports are removed.
What Are the Alternative Mortgage Products to a JBSP Loan?
Parental support is common in UK first-time property purchases, but there are various products and options available, depending on your circumstances and the assistance offered.
Some examples could be:
- Gifting wealth intended to be left as an inheritance to contribute towards your deposit.
- Making a no-interest private loan.
- Applying for springboard mortgages, usually with the parent contributing a certain proportion of the property value into a savings account. The lender retains the lump sum until an agreed value of the mortgage has been repaid and returns the funds with savings interest.
You might also be interested in guarantor mortgages or government support initiatives such as Help to Buy or Shared Ownership, so we would advise giving Think Plutus a call to discuss your situation and receive independent guidance about the best route.
Frequently Asked Questions – JBSP UK Mortgages
To help clarify some of the common questions about JBSP mortgages, our FAQs below shed further light on this alternative borrowing product.
How Does Stamp Duty Work on Joint Borrower Sole Proprietor Mortgages?
As a supporting borrower, you are helping the mortgage applicant pass assessments for affordability and creditworthiness but are not a named party on the property deeds as a legal owner.
Therefore, you will not need to pay any Stamp Duty as a second home transaction, and if the main applicant is a first-time buyer, they can claim the full £425,000 exemption.
What Happens if You Want to End a JBSP Mortgage Early?
You might want to end a joint borrower sole proprietor mortgage because:
- Your financial position changes and you wish to refinance as an independent buyer.
- You decide to sell the property or switch to a buy-to-let mortgage
- Your parents or supporters cannot continue to support your mortgage.
- You have a relationship issue that makes the situation untenable.
It may be problematic for a co-applicant to have the lender remove their name from a mortgage agreement. They can apply for a formal deed but without a guarantee that the lender will comply.
Mortgage providers will usually only grant such a deed if they have evidence that the proprietor can reasonably afford to take on the responsibility for the debt independently.
However, most JBSP mortgage applicants remortgage without any issue after several years, when they have improved their earnings or repaired their credit report.
Another solution might be selling the home and using the funds raised to pay back the JBSP mortgage.
What if a Homeowner With a JBSP Mortgage Passes Away?
If the primary applicant were to pass away, the executor of their legal estate would usually put the property on the market.
The proceeds would repay the mortgage, with any balance passed to the beneficiaries.
Until that happens, the co-applicants on the mortgage agreement are obliged to continue making payments against the mortgage.
How Can I Apply for a Joint Borrower Sole Proprietor Mortgage?
Not all lenders offer JBSP mortgages. Whilst it is a growing sector in the market, JBSP mortgages remain somewhat a niche.
If you would like to compare the current JBSP products available, please get in touch for advice about the rates you would likely qualify for and which lenders are most suited to your needs.
You can find JBSP mortgages through some high-street banks and building societies, but niche mortgage providers tend to offer better rates.
Expert Help Applying for a Joint Borrower Sole Proprietor Mortgage
If you are interested in finding more about a JBSP mortgage and whether it might solve a problem, please contact Think Plutus at your convenience.
As a private, experienced mortgage broker, we make it our business to know your requirements and negotiate directly with trusted lenders to identify suitable products that will enable your purchase plans to move forward.