Joint Borrower/Sole Proprietor mortgages explained

For better or worse, the Bank of Mom & Dad has a huge role to play in getting their offspring onto the property ladder.

A smart way to get parents/grandparents involved is a Joint Borrower/Sole Proprietor mortgage.

Here’s why that is, and how JBSP mortgages differ from guarantor mortgages:

• What’s the difference between JB/SP and Guarantor Mortgages
• When a JB/SP Mortgage is right for you
• How they work…
• …and what lenders expect from all parties involved
• The affect of Stamp Duty, for your JB/SP Mortgage, and beyond

Joint Borrower/Sole Proprietor mortgages

Oh, the frustration of youth! You’re ready to fly the nest, but you either:

• Don’t have the deposit saved for the home you want, or
• Don’t earn quite enough for a mortgage on your own

We hear you. And, yes: we have a solution: Joint Borrower/Sole Proprietor (JBSP) mortgages. These mortgages allow you to lean on your family for your deposit and to help make the repayments. But the property is solely yours from the outset.

It’s a relief to know that there’s a way to achieve your homeownership dream. Even if you don’t have the full deposit or the income for a mortgage on your own now, we can help you get there.

Our guide explains:

• Differences between JBSP, guarantor and joint mortgages
• Questions to ask yourself before you consider a JBSP mortgage
• Who they’re right for
• How JBSP mortgages work
• Lenders’ expectations
• Next steps: prepare to get a mortgage of your own

JBSP, joint mortgages and guarantor mortgages: where they differ:

With a JBSP mortgage, you are the sole homeowner. Yes, underwriters will consider the joint borrowers’ incomes when approving the mortgage. They’ll all also contribute to making the repayments.

However, it’s your name on the deeds, and yours alone. So, when it’s time to sell or remortgage, you can do so without the other borrowers’ permissions.

Where a traditional joint mortgage differs is that both parties share ownership of the property. They’re both responsible for repayments. And both parties must also give permission to sell the home or remortgage it.

Guarantor mortgages are similar to JBSP to a certain extent. As the homeowner, you similarly don’t need the guarantors’ permission to sell the home. But, unlike JBSP mortgages, the only time the guarantor steps in is if you can’t meet the repayments.

Will a JBSP mortgage work for you?

Not everyone is comfortable having their independence held hostage by familial whims. Ask yourself these questions when considering your JBSP mortgage suitability:

How well do you get on with your family?

Most JBSP mortgage providers prefer the joint borrowers to be family members. Close family members, at that. Would your relationship cope with the strain on those occasions when you and your parents/grandparents don’t see eye to eye?

It’s an important question. If there’s a complete breakdown in the relationship, the ramifications could get more unpleasant still. You’d first have to untangle yourself from the current JBSP mortgage contract.

Then, if your income hadn’t increased significantly since you took it out, you might not qualify for a new mortgage on your own. You’d then have to sell your home and start over when your earnings became sufficient.

It’s not just your credit score at risk

One of the potential familial speed bumps is credit rating. And not just yours. If, for whatever reason, you can’t meet a mortgage payment between you, all of your credit scores will take the hit.

You must make this clear from the outset. Whilst your family members are on the mortgage, their credit is as vulnerable to defaults as yours.

A good credit rating is essential for securing a mortgage. To understand how you can check, maintain and improve yours, read our guide: Why mortgage applicants should get a copy of their credit report.

Borrower limitations

You’ll also have to consider several mortgage provider limitations, namely:

• All lenders have a maximum age limit for their mortgage borrowers
• Not all lenders do JBSP mortgages
• Some lenders will want you to prove that your salary will increase over time

So, these are two further questions you have to ask yourself:

How old are the joint borrowers?

All mortgages have a set term: the period over which you repay the loan amount. Considering the mortgage term is essential if it’s your grandparents or older parents who’ll be the joint borrowers. If their age surpasses the lender’s age limit (usually 75), underwriters won’t approve your mortgage.

How do you narrow your search to only lenders that offer JBSP?

As a first-time buyer, you’d ideally want to scour the market for the most competitive deal. And, as we’re a 100% independent broker, we’d generally be able to offer that service. But not all lenders provide JBSP mortgages.

That said, it’s important not to jump at the first offer you get (out of sheer relief)!

Why use a mortgage broker?

Using an experienced broker like us, you can delegate all the legwork. We not only know the lenders who offer JBSP, but we’ve also likely cultivated a strong relationship with them.

Your initial consultation with us is 100% free. During that conversation, we’ll not only verify what you want now, but also consider your future goals. These could be your desired property type, location, career path and long-term financial plans.

Knowing this helps us match you with a mortgage that will help you reach those milestones. We can then highlight your true affordability to help you get the best deal possible for your now and for your future.

Who JBSP mortgages are for

JBSP mortgages are designed for first-time buyers. But if you’ve owned a home before, it doesn’t disqualify you from them.

You could be starting over after having a joint mortgage in the past. Or, for whatever reason, your income may have taken a hit. In these circumstances, it’s only natural that you’d lean on your family.

Alternatively, you could be a first-time buyer taking your first step on the mortgage ladder. In this case, you:

• May not have had time to build up a credit score
• May not have had time to save a big enough deposit
• May be on a low salary, meaning you can’t yet afford the home you want on your own

Regardless of the type of buyer you are, the lender will expect the JBSP mortgage to serve as a stepping stone. When all the current shortfalls eventually align, you’ll probably want to take over the mortgage yourself. On that note, here’s how JBSP mortgages work:

JBSP mortgages simplified

Up to four people can jointly apply for and be responsible for a JBSP mortgage. But only one person, the sole proprietor, is the sole legal owner listed on the title deeds.

All the borrowers on the application are responsible for the monthly payments. They combine their joint incomes to cover the required amount. That sum then qualifies them for a larger loan than the sole proprietor would be eligible for on their own.

As such, JBSP mortgages are perfect for parents who want their children to buy a home, but don’t want to co-own the property.

How it works

Here is the Joint Borrower/Sole Proprietor process laid out in simple steps:

Mortgage application: the borrowers

In total, four people can apply for a JBSP mortgage. They all may or may not have contributed towards the deposit. But they’ll all be jointly and legally responsible for the mortgage repayments.

Ownership: the sole proprietor

Only the sole proprietor’s name is on the property’s title deeds. This makes them the only legal owner. It also means that they don’t need the other borrowers’ permission to sell or remortgage the home.

Repayment responsibility

All the borrowers on the mortgage application are equally liable for repaying the mortgage. If the sole proprietor faces a cash flow crisis, all the other borrowers must cover any shortfall.

Legal Advice:

Regardless of how you get along as a family, it behoves all named borrowers to take legal advice. For some lenders, this is a requirement, not a prerogative. This ensures that the borrowers understand the risks of being responsible for a property they don’t own.

Remortgaging:

JBSP mortgages are designed to serve as a stepping stone. So, when the sole proprietor is better off financially, they can remortgage to a deal solely in their name. This happens typically at the end of the initial introductory term, but there is no obligation to do so.

Everyone must be pragmatic about the sole proprietor’s expectations when deciding on that initial term. When will they be able to stand on their own two feet?

The usual introductory terms for JBSP mortgages are two or five years, but can stretch from one to ten years. It makes sense to set a realistic introductory term to give the sole proprietor a platform for sole homeownership.

Preparing for sole homeownership

There are a couple of things you should be doing whilst you’re in that first introductory mortgage period.

The first is to build up your credit score. With a consistently clean credit report, underwriters are more likely to approve your next mortgage.

You could also get ready for the jump in repayments that you’ll experience when going solo. To that end, reduce the amount the other borrowers pay during the introductory term and contribute more yourself.

How far you want to run with this second recommendation depends on what your next step is. Talk to all borrowers concerned while you have this golden opportunity. Planning will provide you with a clear pathway and greater control over your own future.

Stamp Duty:

There are two key positive points to consider regarding Stamp Duty:

The first is that any joint borrowers who already own a property don’t have to pay the second home stamp duty surcharge. That’s because they’re not named on the property’s deeds.

Secondly, it presents an opportunity for sole proprietors who subsequently become first-time buyers.

They’re still eligible for a certain amount of Stamp Duty exemption when they take out their first solo mortgage. That’s even when the joint borrowers on their previous JBSP mortgage were existing homeowners.

That’s because only the sole proprietor is named on the new title deeds. In effect, they remain a legal first-time purchaser.

Talk to a broker first

We always recommend getting a mortgage through an independent broker. But, in the case of JBSP mortgages, it really is a critical step.

In addition to the legal aspects, there’s a unique emotional aspect to this type of mortgage. Both the borrowers and the sole proprietor are implicitly trusting one another.

In this guide, we’ve listed the process. But talk to our brokers during the initial chat. We’ve secured hundreds of JBSP mortgages, meaning we offer advice that goes beyond the practical. It goes a long way, just as you will as you begin your homeownership journey.