15 Feb 2018
Author: Stephen Breen
A new wave of ‘joint borrower sole proprietor’ (JBSP) mortgage products have given parents more opportunity to help their children get a foot on the housing ladder.
Parents who agree to be a joint applicant with their child can help the child to secure a larger sum, or simply help them to be accepted when they would not otherwise be eligible.
However, traditionally, mortgage lenders have required all parties liable for the mortgage to be listed as a proprietor of the property at the Land Registry. As parents will typically already own their own home, the property purchased with their child will be treated as a second home, even if they have no intention of living in it. This results in an inflated stamp duty charge of 3% above the normal rates which can be a substantial burden.
Further, the Government’s recent decision to remove stamp duty for most first time buyers is a valuable incentive that would also be missed if the parent was listed as a joint owner. First time buyers do not pay stamp duty for properties costing up to £300,000; and where the property costs more than this amount, they will only pay stamp duty on the excess.
The new wave of joint borrower, sole proprietor mortgages allows parents to join in on a mortgage without being listed as an owner on the Property’s title. Consequently the ‘second home’ stamp duty charge does not apply and the first time buyer stamp duty exemption can also be used where applicable.
A number of lenders offer JBSP mortgages including Hinckley & Rugby Building Society, Metro Bank and the Family Building Society. With interest in these products growing rapidly, it is likely more lenders will offer a similar arrangement in the near future.
JBSP mortgages: how they work
JSSP mortgages are available to close relatives – for example, parent and child. The parent’s income and expenditure is used to determine affordability, typically giving the child a better chance of being accepted and the possibility of a larger loan. Elderly parents may not be accepted with the key consideration being the parent’s age at the end of the mortgage term: a limit of 70 – 75 years is typical amongst those offering JBSP products. A shorter mortgage term may be a solution but this will result in higher mortgage payments, limiting affordability.
Lenders will take into account various types of income, including pension income. They are also likely to look at the borrower’s profession to see if the borrower might one day take over the commitment of the mortgage themselves. A career path where a salary rise in the future is likely will be more desirable.