Yahoo Finance What is a joint borrower sole proprietor mortgage, and should you get one with your children?
Joint Borrower Sole Proprietor (JBSP) mortgages allow up to four people to be named on the mortgage, with only one (or two) being the property’s sole proprietor and named on the deeds.
It can be an alternative solution for parents who want to help their children get on the property ladder without parting with a cash lump sum.
The Bank of Mum and Dad supported 318,000 home purchases in 2023 – that’s 47pc of all homes purchased by under 55s, according to research by Legal & General.
Here, Telegraph Money explains how this mortgage works and the risks, should things go wrong.
How does a joint borrower sole proprietor mortgage work?
A JBSP mortgage works in a very similar way to a “normal” mortgage – the main difference is there are additional names on the mortgage that aren’t on the deeds.
With increasing house prices and tighter mortgage affordability, this type of mortgage has grown in popularity recently. According to Tembo, a mortgage broker, there were an estimated 15,000 to 20,000 JBSP mortgages arranged last year, accounting for 5-7pc of first-time buyer purchases.
“As awareness and demand has grown for these products, we’ve seen more lenders branching out into the space. Just four years ago there were around 10 lenders providing JBSP mortgages, while today that number is closer to 20,” says Richard Dana, founder and CEO at Tembo.
The lender assesses affordability by taking the income of all parties into account, meaning the sole proprietor can afford a larger mortgage than if they just used their own income. Some lenders (although not all) require the additional borrowers to be immediate family members of the homeowner.
Mr Dana said: “In the vast majority of cases that we advise on, the buyer still pays the full mortgage repayment each month (which is often less than what they had been paying in rent), but it helps them to increase overall affordability.”
As the additional names on the mortgage are liable for the mortgage, but don’t have a stake in the property and its equity, a condition of the mortgage is that they get independent legal advice. This costs around £300 and can be arranged via a mortgage broker, but it formally ensures that everyone is aware of the risks involved.
“From the bank’s perspective, all parties on the mortgage are joint and severally liable for the mortgage, hence this gives the bank the protection it requires,” said Adrian Anderson, of the mortgage broker Anderson Harris.
What are the advantages?
The major advantage of this type of mortgage is that a buyer can get a bigger mortgage without having to find additional money for a deposit. Parents can also help their children on to the property ladder without giving them any money – something that’s useful, whether they have available cash or not.
“For parents, this is a good way to support a child rather than giving them an outright handout – for many that is compelling, as they appreciate the tricky affordability issues but don’t want to hand the home to their child on a plate. They want them to work for it,” said Mr Dana.
That said, this mortgage can be used in conjunction with a cash gift to further boost the size of mortgage a child could afford.
“There are also benefits if there are concerns from the parents around the long-term prospects of their child’s partner. With a JBSP, no assets are handed over, so in the event of a break-up there is no risk that the buyer’s ex-partner will walk off with a half-share of any inheritance.”
The idea of a JBSP mortgage is that it is a temporary leg-up. “As part of the advice process for a JBSP there would be a detailed review of financial circumstances, particularly over the initial fixed term of the mortgage (which is generally two or five years),” said Mr Dana.
“We see that, on average, the boosters come off the mortgage after four years. This would be when the buyer would be able to pass mortgage affordability on their own. This might be for a number of reasons – including a build-up of equity in the home, or a promotion or pay rise.”
Additionally, as only the homeowner has their name on the deeds, a big advantage of this mortgage is that if any of the other parties already own a property, they won’t be liable to pay the extra 3pc stamp duty or capital gains tax.
“We see siblings working together, where one is on the deeds of the property, but the other is also a joint borrower. It means they can benefit from increased affordability, but the second sibling will protect their first-time buyer stamp duty allowance for when they want to buy a home of their own,” added Mr Dana.
What are the risks?
The main issue of a JBSP mortgage is what would happen if the sole proprietor were unable to make their repayments for some reason.
“A risk for the additional person on the mortgage is that they will be jointly and severally liable for the mortgage liability without having any financial interest in the property asset,” said Mr Anderson.
“This additional person will have to step in and pay the mortgage, if required, otherwise any late or non-payments will have an impact on their credit rating.”
Another important consideration is that being named on this mortgage will affect the future borrowing potential of the additional parties.
This may be irrelevant if the named party is a parent who has paid off their own mortgage and has no plans to take out a new one, but it’s worth being aware of.
Being named on a JBSP mortgage doesn’t stop you having a mortgage of your own per se, you just need to have sufficient income to qualify for two mortgages.
Who does a JBSP mortgage suit?
Joint Borrower Sole Proprietor mortgages aren’t necessarily just for first-time buyers – or those trying to help first-time buyers – but this is the sector they’re most popular with.
“A JBSP mortgage is usually seen as short to medium-term help for buyers getting on to the property ladder, with the aim of them taking the mortgage in their own right in due course and releasing the joint borrower from the mortgage,” said Mark Humphrey of MHC Mortgages.
“The JBSP mortgage helps parents with good incomes, but no spare cash to gift, to address the income shortfall for their children.”
If the additional party isn’t working, other forms of income can be taken into account. “Some parents may not have a regular earned income but may have investments, savings, a Sipp pension etc which some banks can take into consideration for the overall affordability,” added Mr Anderson.
While less common, this type of mortgage can also be used the other way around, as a way to help elderly parents secure a mortgage using their children’s income.
What are the limitations?
JBSP mortgages are a popular choice among parents wanting to help their children out, but it’s imperative to be aware of the age restrictions in place.
“Lenders tend to offer a term to the age of 75, 80 or even 85 for the oldest borrower if using their earned income,” said Mr Humphrey. “There may be more flexibility if they’re already retired and we’re using pension income.”
Mr Dana suggests preparing for even the worst-case scenarios: “Another really important thing to consider is income protection and life insurance. This would protect the family in the event the buyer (or booster) died or was unable to work due to ill health.”
