What is a Joint Borrower Sole Proprietor Mortgage?

Your home may be repossessed if you do not keep up repayments on your mortgage.

What is a Joint Borrower, Sole Proprietor Mortgage?

Joint Borrower, Sole Proprietor mortgages are a fairly new breed of mortgage offered by a select few lenders. It means that you can add a ‘joint borrower’, typically a parent, so that you can use their income to help boost the amount you can borrow. The ‘Sole Proprietor’ part means that this joint Borrower isn’t named on the deeds of the property so that you stay as the owner.

More than anything else, the main restriction we find for first time buyers trying to getting on the ladder is being able to borrow enough to get the property they want. The amount you can borrow is based on a number of factors (income, outgoings, credit score, length of mortgage, size of deposit). Although there are lenders that will lend slightly more than others and we’ll make sure we’ve exhausted all options in relation to this, there is a limit. If this isn’t enough, there is little you can do.

Example:

• A single applicant earning £30,000 with no debts may be able to borrow £142,500. (4.75 times income)
• If they added a Parent to this calculation as a ‘Joint Borrower’, and that parent was earning £50,000 with no debts. The amount they could borrow may increase to £380,000.

What are the downsides of Joint Borrower, Sole Proprietor mortgages?

It’s important to say that everyone’s situation is different so this is not an exhaustive list. The best thing to do would be to give us a call so we can discuss your situation. That being said, let’s highlight a few points we think you should be aware of.

• You may have to reduce the overall term of your mortgage and therefore it may be more expensive per month. The overall term of your mortgage is normally limited to your planned retirement age. As the ‘Joint Borrower’ is assessed the same way as you, if you are thinking of adding a parent they will be closer to retirement age and we’d have to look at a shorter term. If your parent is 50 and will retire at 65, you would be limited to a 15 year mortgage term.
• There aren’t as many options as not all lenders do this. Therefore you may have to take a slightly higher product to benefit from this.
• The ‘Joint Borrower’ will be responsible for the mortgage payment. Therefore, if you missed your payment, their credit score will be impacted as well.
• Being named on the mortgage as a ‘Joint Borrower’ may reduce their ability to borrow in the future. As they are named and are responsible for the mortgage payment too, this will have to be taken into account for any other borrowing they want to make while they are named.

Most lenders will require the ‘Joint Borrower’ to get independent Legal Advice to make sure they understand the consequences. This Independent Legal Advice usually comes at a cost so you’ll have to budget for this.

Can I get a Guarantor Mortgage?

Simply, Guarantor mortgages used to mean that someone else could be named in the background to say ‘If this person defaults on their mortgage payment I’ll cover it.’ The issue with this was that the Guarantor wasn’t assessed heavily enough and therefore there was no way of knowing whether they could feasibly cover someone else’s mortgage payment if needed. There was a number of other flaws with them but the long and short of it is, Guarantor mortgages have all but disappeared.

The Guarantor mortgages that are available today, such as Barclays Family Springboard Mortgage, are for customers who have the affordability, but not the deposit. With this scheme, your parents would put the equivalent of a 10% deposit into a Barclays savings account and wouldn’t have access to the funds for 5 years. At the end of the 5 years, they would get their money back with interest and you would own a property with a Barclays mortgage.

Can’t I just add someone to my mortgage?

You could add someone else to the mortgage but if there are named on the mortgage, they must be named on the deeds. Therefore, they will legally be a joint owner of the property and this may mean increased Stamp Duty or other financial issues if they own their own property separately. They’ll also need to be removed from the deeds in the future and this will cost extra. We can explore this but 9 times out of 10, you’d be better looking at a ‘Joint Borrower, Sole Proprietor’ mortgage.

If you would like some more information on stamp duty, we suggest looking at www.stampdutycalculator.org.uk.

Joint Borrower Sole Proprietor mortgages are great for the right applicant but there is only one way to know if it will work for you, give us a call! We’ll have a chat about whether this will work for you and go through all your options. There is no cost for this initial consultation and may help to clear up your options.