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Joint applicant, sole proprietor mortgages

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By Pete Mugleston   Mortgage Advisor

Last updated: 21st November 2018

The property market is a daunting place for a first time buyer. With slow wage growth and the soaring cost of living, it can seem near impossible to ever own a home.

That’s why many are choosing the route of a Joint Borrower Sole Proprietor mortgage.

The reason being? It allows a second party, usually a parent, to help their child buy a home by joining their mortgage and not feature on the title deeds for owning the property.

We understand how confusing mortgages can be, so fear not, we are here to help.

In this article we’ll explain everything you need to know about joint borrower, sole proprietor mortgages including:

Can a Joint Borrower Sole Proprietor mortgage be used for other reasons too?

Yes - this type of mortgage isn’t to be used exclusively for a first time buyer.

There are other reasons why a person would choose to opt for a JBSP mortgage including tax benefits and also to protect their assets.

Why would someone use a Joint Borrower Sole Proprietor mortgage?

There are a few different scenarios which make good use of this option:

  • To get onto the property ladder
  • For tax purposes
  • To protect their assets

Why would someone use a Joint Borrower Sole Proprietor mortgage to get on the property ladder

JBSP mortgages can be a much needed solution for a lot of first time buyers who have found it difficult to be approved for a mortgage alone. This could be for a range of reasons including that:

  • If their income is low. Many lenders will accept up to four applicants and consider two incomes. A few will accept the incomes of all four.
  • They are newly self-employed and may not have enough income to cover a sole mortgage yet
  • They might 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)

For a lot of first time buyers, saving a large deposit can be near impossible with the price of living forever increasing and the expense of already paying for rent and commuting to work too.

High-street lenders and banks have become extremely cautious and stringent when assessing a mortgage application, especially one from a younger buyer who may have either no credit history or an unfavourable one.

Of course, the criteria for a mortgage approval does differ from each lender.

However with the security of an additional income on an application, it can be a lot easier to be approved and make those first steps on to the property ladder.

Enter the bank of Mum and Dad

A JBSP mortgage is often used to help people on ‘lower’ incomes to get support from someone (usually a family member) who will add their name to the mortgage but not to the property deeds, in order for their income to be used in the assessment.

Usually parents will have a higher income, savings or a pension which can appear as less risky to a lender in comparison to say, a starting salary of £23,000 and little savings.

This is because if you should fail to keep up your mortgage repayments, the lender needs the security of knowing that someone else will, for example, the additional person on your mortgage.

Does this mean I could borrow more using a joint borrower, sole proprietor mortgage?

Potentially, yes. With a higher income on your mortgage application, you are able to increase the amount of money you borrow in order to buy a bigger house or make home improvements.

Essentially, the higher the income, the larger the loan available.

An example of this would be a someone buying on their own with a 10% deposit of £30,000. They want to buy a £300k property which would mean that they need a mortgage of £270k.

Most lenders will offer a maximum of 4x income. If this applicant had a yearly income of £40k that would equate to £160k. A select few lenders may offer might do 5x (£200k) and in the right circumstances at best they may be approved with a specialist at 6x (£240k). Therefore, even at the top end, the applicant couldn't afford to borrow a £270k mortgage to buy the property.

However, if they were to add a second borrower on the application who earns, £30k, it would give a combined income of 70k a year. This mean that 4x income lenders could consider up to 280k, so would be able to offer the mortgage on a JBSP basis.

Will a Joint Borrower Sole Proprietor mortgage affect how much stamp duty I pay?

 If you are a first time buyer and have never owned a freehold or have a leasehold interest in a residential property in the UK or abroad, then no.

In 2017, the Chancellor announced that Stamp duty would be abolished for first-time buyers who are buying a home of up to £300,000.

This could potentially equate to a hefty saving of up to £5,000, meaning that money put by for stamp duty can now be added to a deposit.

What if the additional person on my mortgage already has a property?

Currently, stamp duty is charged at an additional rate of 3% for those buying their second property.

We have spoken to many people concerned that if the second person on their mortgage already has a property, they will be required to pay more stamp duty.

The person assisting on your mortgage does not have to be on the property deeds. Therefore, they do not have any rights over any equity or any profit made on the property. This means that they do not pay the 3% stamp duty surcharge for second properties as technically, the property isn’t theirs.

What if I’m not a first time buyer?

If you are selling your property and looking for a joint borrower sole proprietor mortgage as a home mover, then it is of course still possible to do. Stamp duty would be as it was for any other existing homeowner moving house.

If the property you’re planning to buy is your second property, i.e. a second home or a  buy-to-let property, then you will have to pay an extra 3% in Stamp Duty.

This, along with other financial reasons, is why a lot of people choose to have a spouse’s or other family member’s name on the deeds to their property, rather than their own.

Using a Joint Borrower Sole Proprietor BTL mortgage for tax purposes

In the past, couples have set up a Buy to Let mortgage in the sole name of the lowest earner as this would mean they would pay less tax.

However, buy to let mortgages have stricter criteria now and lenders require the person on the mortgage to have an income.

Therefore, a stay at home parent or the person with less income may no longer be accepted as the sole applicant and with many lenders (although there are specialists still available) the mortgage could be rejected.

That’s why many couples and spouses now turn to a Joint Applicant Sole Proprietor buy to let mortgage as it could allow the ownership of the property to remain in the lower earner’s name yet have both parties contribute towards the mortgage repayments.

Can my partner take out a Joint Borrower Sole Proprietor mortgage so we can avoid stamp duty?

Yes, this same logic could also be applied for stamp duty on a residential purchase too.

For example, if one person in the couple already owns a home but the other is a first time buyer, the first time buyer’s name can be used on the property deeds while the others is not.

As the first time buyer would be exempt from stamp duty and the partner/spouse wouldn’t be on the deeds of the property, the couple could avoid paying stamp duty, potentially saving a lot of money.

Using a Joint Borrower Sole Proprietor mortgage for protecting assets

Many people who own a business or other venture may wish to protect their home in the event that their business fails, as this could lead to their home being seized or taken as payment for any debt.
A JBSP mortgage allows business owners to put their home in a partner’s name, therefore keeping the property completely separated from all other assets that could be taken.

The person with the business may contribute towards the mortgage however in order for their home to not be exposed and to not be taken into account when their tax bill is calculated, their name must remain off of the property deeds.

What should I consider before getting a Joint Borrower Sole Proprietor mortgage?

A JBSP mortgage, like any mortgage, is a huge financial decision, so it’s good to know exactly where you and anyone else on the mortgage stand.

We’ve listed some commonly asked questions below to help you gain some information on whether this type of mortgage is right for you.

What happens if the relationship breaks down between the homeowner and the person who has agreed to be on the mortgage?

It could be It can be a fairly difficult and timely process for the non-legal owner to have their name removed from the mortgage, if the relationship breaks down.

Because of the nature of a joint application sole proprietor mortgage, it is often unlikely that the legal owner can afford the mortgage on their own, although not always the case.

This can result in the non-legal owner being faced with a costly legal battle, which is why a joint application sole proprietor mortgage should never be taken out lightly.

This is also another reason why an exit plan agreed on by all parties is so important, and why most lenders will always ask that all parties seek independent legal advice before proceeding.

Will any future changes of circumstances have an affect on your mortgage?

You should also consider potential future factors including:

  • Inflation and how this could affect your affordability
  • Increase of mortgage rates and how this could affect your mortgage repayments
  • A relationship or marriage - they may want to contribute to the mortgage and have their name on the property deeds
  • A change for the non-owner applicant, who may want to buy a property or take some line of credit, and this mortgage may get in the way of them borrowing what they want if affordability is tight on them evidencing they can cover the cost of both mortgages. Similarly, if they want to refinance an existing mortgage, or you both want to remortgage the joint borrower sole proprietor mortgage, if they have taken other credit since, affordability may be an issue.

Do you have an exit plan for your joint owner sole proprietor mortgage?

Before you and the person who has agreed to apply for the mortgage with you commits, it can be helpful for everyone involved to know what you plan to do in the future regarding your mortgage.

For example, you may want to get the mortgage in your own name one day, or perhaps in the future change the names on the mortgage to include a partner or spouse.

You should also have an exit plan and for most this would be refinancing the property into sole name, as/when their income increases or the mortgage decreases, to make this affordable.

In the event that you are unable to keep up with your mortgage repayments as the additional person on your mortgage will then be liable to pay them. In this case, your only option may be to sell your property to pay back your mortgage and avoid burdening the other person involved.

Can you afford to pay the mortgage on your own?

The most crucial thing to consider is whether you can afford to pay a joint owner sole proprietor mortgage on your own. If you are adding someone to the mortgage but intend to finance the payments yourself, keep in mind that the other person will be obliged to pay the mortgage if you don’t and that they need to seriously consider all of the financial implications.

It can be really useful to sit down and calculate your income and future outgoings once your mortgage is approved, including:

  • Council tax
  • Other bills including gas, electricity and water
  • Home and contents insurance
  • Maintenance including boiler repairs, gutters and general wear and tear
  • Other financial commitments including debt and ongoing finance payments
  • Living costs

What term can the JPSB mortgage be taken over?

Like most mortgages, the maximum age at the end of a Joint Borrower Sole Proprietor mortgage term can be as high as 80, or with some lenders, no maximum age limit.

This can be beneficial for everyone involved if all parties are contributing towards the mortgage as it means the loan repayments can be spread over an affordable term.

Be careful when borrowing with older applicants of course, as affordability is often restricted to retirement age, so terms can be limited. If for instance, you want a JBSP mortgage with someone who is 60, the lender policy may be to cap the term to 5 years, meaning the mortgage payments would be through the roof!

For this reason, it’s useful to speak to a joint borrower sole proprietor mortgage expert who can give you the right advice and match you with the best deal, whatever the age of borrower

How many applicants can be considered?

Although mostly taken out by two people, up to four applicants can be considered for a mortgage. In fact, despite some lenders only accepting two incomes on a mortgage application, there are lenders who will consider up to four incomes on a mortgage application. This can often mean that a larger mortgage can be taken out. This does vary as each lender uses their own criteria to assess an application.

Is it only for residential products?

No. Joint Borrower Sole Proprietor mortgages exist for both residential and buy-to-let loans. Additionally, this type of mortgage could also be used in a student buy to let, with the child living in the property whilst at university and then renting it out after they graduate.

Should I get advice before applying?

Yes!

It can be really helpful to seek advice from a mortgage advisor before applying for a Joint Borrower Sole Proprietor mortgage as it is a huge commitment for all parties involved.

With any mortgage, additional information and the right advice can save you a lot of time and stress.

One of the advisor we work with will be able to research the best lenders based on your circumstances and can guide you through the process of applying and what to do next.

Speak to a joint borrower sole proprietor mortgage expert today

If you are considering applying for a Joint Borrower Sole Proprietor mortgage, please feel free to speak to one of our advisors who will be more than happy to help.

We only work with qualified advisors we trust, so you can be assured that we’ll pass you on to a broker with specific experience with the mortgage you are looking for.

There are a range of Joint Borrower Sole Proprietor mortgage lenders who will consider your application but the advisors we work with will find the one that’s right for you.

If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 21st November 2018
OnlineMortgageAdvisor 2018 ©

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The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

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