For many individuals and families navigating the UK property market, affordability remains one of the key challenges in getting onto the property ladder. To this end, various mortgage solutions have been developed by lenders to cater to different financial and personal circumstances. One such option growing in popularity is the joint borrower sole proprietor mortgage.
This type of mortgage offers a unique solution where multiple people can support a mortgage application, yet not all of them will appear on the property title deeds. In this comprehensive guide, we will cover what a joint borrower sole proprietor mortgage is, how it works, who it may suit, as well as the pros, cons and potential tax implications involved.
What Is a Joint Borrower Sole Proprietor Mortgage?
A joint borrower sole proprietor mortgage (frequently abbreviated to JBSP) is a specialist type of mortgage where more than one person applies for the mortgage, but only one of them is the legal owner of the property. The additional borrower(s) help with the affordability aspect of the mortgage by contributing income to the application, yet they will not be listed on the legal title or have ownership rights over the property.
Typically, JBSP mortgages are used by parents or family members who wish to support a first-time buyer. However, they are also useful in a range of other situations where one person might struggle to meet lender affordability requirements alone.
How Does a Joint Borrower Sole Proprietor Mortgage Work?
With a JBSP mortgage, all borrowers are equally responsible for the mortgage repayments. However, ownership of the property is limited to the sole proprietor — the individual named on the property title. Here’s how it is usually structured:
- Main borrower (sole proprietor): This is typically the person who will live in the property and ultimately benefit from owning it.
- Supporting borrower(s): These are usually family members, such as parents or sometimes siblings, who agree to be co-borrowers. They contribute their income to help the applicant qualify for a higher loan amount. They are not on the title deeds and do not own the property.
This arrangement allows the main borrower to obtain a mortgage that would otherwise be unaffordable on their income alone. Importantly, because the supporting borrower is not on the title deeds, they are not subject to additional property ownership taxes, such as higher stamp duty rates for second homes.
Typical Scenarios Where JBSP Mortgages Are Used
Joint borrower sole proprietor mortgages can be suited to a range of financial and personal situations. Common examples include:
- First-time buyers supported by parents: A common use case where a parent co-signs the mortgage to assist their child in buying their first home, without appearing on the property deeds.
- Income boosting for affordability: When a single applicant’s income isn’t sufficient to reach the desired loan amount, a JBSP can allow them to include someone else’s income in the application.
- Couples with differing financial goals: If one partner already owns a property and does not wish to take on a second, more complex financial commitment, the other could apply as sole proprietor while still getting support with income from their partner.
- Credit history concerns: When one party has a poor credit record, a JBSP may enable the other person to apply as the main borrower with support from someone with a stronger credit profile.
Eligibility Criteria for JBSP Mortgages
Lenders will assess a range of factors when considering an application for a joint borrower sole proprietor mortgage. These typically include:
- The financial situation and credit reports of all borrowers
- Proof of income for both the main and supporting borrower(s)
- The age of all parties involved, particularly lenders’ upper age limits on supporting borrowers
- Affordability calculations that take all incomes into account
- The intended occupancy of the property
It’s worth noting that while the supporting borrower will not be listed on the title deeds, they are equally liable for any missed payments or arrears. Lenders conduct full affordability and risk assessments of all borrowers before approving a JBSP mortgage.
Stamp Duty and Tax Considerations
One of the key advantages of JBSP mortgages, particularly for those helping a loved one to buy a home, lies in how it can help avoid higher stamp duty charges. In the UK, an additional stamp duty surcharge is applied when buying a second home. This is often the case if a parent already owns their own home and wants to assist their child with buying a property.
By not including the parent on the property title, a joint borrower sole proprietor mortgage ensures that only the main buyer is listed as the owner. This means only the standard stamp duty rates apply, assuming they do not own other properties.
However, it is important to seek professional tax advice on any implications, as circumstances can differ and tax rules may change. There may also be inheritance tax considerations in the longer term, particularly where large contributions are made by family members.
Advantages of a Joint Borrower Sole Proprietor Mortgage
There are several potential benefits to using a JBSP mortgage, depending on your specific situation:
- Improved affordability: Including a second income may allow the main borrower to secure a higher mortgage amount than they could alone.
- Help for first-time buyers: Enables younger individuals or those on lower incomes to access the housing market with support from family.
- Potential stamp duty savings: Because only one person is named on the title deeds, others are not treated as second property owners.
- Builds independence: The sole proprietor maintains full ownership of the property and starts building their credit and equity independently.
Disadvantages and Risks
Despite the advantages, it’s essential to be aware of the possible downsides of a JBSP mortgage:
- Shared liability: All borrowers are legally responsible for the mortgage payments. If the main borrower defaults, the supporting borrower remains liable.
- No ownership rights for supporting borrower: The co-borrower has no legal claim to the property, regardless of any financial contributions made.
- Future lending implications: The supporting borrower’s financial commitment to a JBSP mortgage may impact their ability to borrow for other purposes in the future.
- Complications if relationships change: If circumstances change — for example, a partner relationship ends — unwinding the arrangement can be complex.
Lenders Offering JBSP Mortgages
Not all mortgage lenders offer joint borrower sole proprietor mortgages, and policies can vary between those that do. Some mainstream banks and building societies do offer JBSP options, while others may restrict this to certain borrower types or impose stricter criteria on age or income.
The availability of JBSP mortgages has grown in recent years, especially as lenders recognise the financial realities faced by many first-time buyers. However, individual lender criteria differ, and not all JBSP mortgages are available on all property types or borrower profiles.
What Happens if One Borrower Wants to Exit the Arrangement?
Removing a borrower from a JBSP mortgage can be complex and usually requires either refinancing or full repayment. This is because all borrowers are jointly and severally liable for the loan.
If the supporting borrower wishes to step away from the arrangement, the main borrower would need to demonstrate that they can afford the mortgage on their own. If not, the mortgage may need to be restructured or a new deal considered.
Legal advice can be helpful in these situations, particularly if significant sums of money have been contributed by a supporting borrower without any ownership claim to the property.
Alternative Options to Consider
While joint borrower sole proprietor mortgages are suitable in some circumstances, they are not the only way to assist a buyer with affordability. Other options can include:
- Guarantor mortgages: A guarantor promises to cover repayments if the borrower fails to pay. Unlike JBSP mortgages, the guarantor doesn’t usually contribute income directly to the mortgage calculations.
- Gifted deposits: A family member may provide a deposit as a gift, reducing the loan-to-value and allowing the buyer to qualify for a more favourable deal.
- Joint ownership: Buying a property jointly can offer shared ownership rights, but this comes with the higher stamp duty implications if one party already owns a home.
Each of these routes has its own implications for tax, affordability and legal ownership and should be carefully considered in line with individual circumstances.
Important Considerations Before Choosing a JBSP Mortgage
Before committing to a joint borrower sole proprietor mortgage, it is vital to think through the practical, financial and legal implications. Some key points to keep in mind include:
- Discuss all terms clearly with your co-borrower: Make sure everyone understands their responsibilities and liabilities.
- Consider legal agreements: A declaration of trust or other legal document might help to record any financial contributions and help prevent future disputes.
- Understand the long-term commitment: Supporting borrowers may be tied into the mortgage for many years, which could affect their own future financial plans.
- Review tax implications with a qualified professional: Stamp duty, inheritance tax and future capital gains could be relevant depending on your setup.
Final Thoughts
The joint borrower sole proprietor mortgage is a flexible and increasingly utilised option for buyers who need support with affordability but want to retain sole ownership of their home. It can be a particularly useful tool for younger buyers, those with limited income or people being supported by family members who wish to avoid second home stamp duty charges.
Like any financial arrangement, JBSP mortgages come with responsibilities for all involved. It’s vital for all parties to fully understand the conditions and risks before proceeding. Seeking professional support from a mortgage advisor can help you navigate the complex range of products available and ensure that the solution you choose aligns with your financial and homeownership goals.