A joint borrower, sole proprietor (JBSP) mortgage might make things easier for first-time buyers who have a family member who is ready to help them financially. However, before applying for one of these items, you should seek professional guidance. Read on to learn how these arrangements function, how they can be utilised for tax purposes, and why it’s a good idea to obtain professional counsel before getting started.
What is a Joint Borrower Sole Proprietor Mortgage?
A joint borrower, sole proprietor mortgage permits numerous people to make mortgage payments while a single applicant owns the property and is listed on the deeds. You can maximise your mortgage by combining wages but keeping sole ownership of your property, which is usually geared towards helping family members get on the property ladder or move house.
This option is useful in a variety of situations, including:
- Obtaining a foothold on the property ladder
- Taxation Purposes
- To safeguard their possessions
This article delves into each of these possibilities in-depth, so keep reading to learn more.
These mortgages may be a much-needed option for many first-time purchasers who have struggled to qualify for mortgage approval on their own.
This could occur in a variety of situations, including:
- Their earnings are modest. It might be a joint mortgage with three candidates; however, many lenders will accept up to four applicants and two incomes. Only a few will accept all four incomes.
- They are new to self-employment and may not yet have enough revenue to afford a sole mortgage.
- They could have no credit history or a poor credit score. In this case, having someone with good credit on board can assist get the mortgage authorized. However, if the primary borrower is applying for a bad credit mortgage, adding a joint borrower is unlikely to assist overcome credit concerns. It would be more prudent to investigate a specialist bad credit lender and keep in mind that a joint mortgage may be achievable even if one applicant has low credit.
Read Also: JOINT LOAN: Definition And All You Need To Know
Saving a sizable deposit might be nearly difficult for many first-time buyers, with the cost of living constantly rising and the added expenditure of paying rent and travelling to work.
When analyzing a mortgage application, high-street lenders and banks have become highly cautious and strict, particularly if the applicant is a younger buyer with no or unfavourable credit history.
Of course, the conditions for mortgage approval range from one lender to the next.
However, with the assurance of a second source of income on an application, it might be much easier to get approved and take those initial steps up the property ladder.
How to Use a Joint Borrower Sole Proprietor Mortgage
Aside from assisting people who would struggle to climb onto the property ladder without family support, joint borrower, sole proprietor mortgages can be used to borrow a larger amount than you would be able to solo. Other applications, as previously mentioned, include asset protection and tax purposes. Continue reading to learn more about each of these applications…
Borrowing more Money with a Joint Borrower Sole Proprietor Mortgage
During the affordability assessments, the income of everyone involved in the agreement will be revealed, which means you might potentially borrow more than you would qualify for as a single application.
Someone buying on their own with a 10% deposit of £30,000 is an example of this. They want to buy a £300,000 home, which would necessitate a £270,000 mortgage.
Many lenders limit their lending to 4.5 times the borrower’s income. If this applicant earned £40,000 each year, his or her annual salary would be £180,000. A few lenders may offer 5x (£200k) income, and in exceptional cases, they may be accepted for a speciality mortgage at 6x (£240k) income.
As a result, even at the top end, the applicant couldn’t afford to borrow £270,000 to purchase the property.
However, if they include a second borrower on the application who earns £30,000 per year, the total annual income would be £70,000. This means that 4.5x income lenders could accept loans of up to £315k, allowing them to issue mortgages on a joint borrower, sole proprietor basis.
Using a Joint Borrower Sole Proprietor JBSP Buy-to-let Mortgage to Save Money on Taxes
In the past, couples would put up a buy-to-let mortgage in the sole name of the lowest-earning spouse in order to pay less tax.
Buy-to-let mortgages, on the other hand, have tougher conditions than residential mortgages, and lenders demand the individual on the mortgage to have an income.
As a result, a stay-at-home parent or someone with a lower salary may no longer be approved as the sole applicant, and the mortgage may be denied by many lenders (though experts are still accessible).
That’s why many couples and spouses are turning to a joint owner, sole proprietor buy-to-let mortgage, which allows the home to remain in the name of the lower earner while both partners contribute to the mortgage repayments.
Using a Joint Borrower Sole Proprietor JBSP Mortgage to Safeguard Assets
Many people who operate a business or other enterprise may want to protect their house if their firm fails, as this could result in their home being seized or confiscated as payment for any debt.
A JBSP mortgage allows company owners to put their home in the name of a partner, separating the property from all other assets that could be taken.
The individual who owns the business may pay the mortgage, but in order for their home not to be revealed and taken into account when calculating their tax bill, their name must be removed from the property documents.
What Distinguishes Joint Borrower Sole Proprietor JBSP Mortgages from Joint Mortgages?
Pooling your financial resources with someone else, such as a partner, might help you save more money and potentially minimize the amount of interest you’ll have to pay in the long term.
All parties will be named on the title papers and have legal ownership of the property with ordinary joint mortgages, such as those used by couples buying a home together. A JBSP mortgage, on the other hand, can have up to four people named on it, but only one has legal ownership of the property.
Furthermore, if the supporting borrower – such as a parent – already owns the property, they will not be required to pay the 3% stamp duty premium for second residences with a JBSP, as they would with a conventional joint mortgage. This is due to the fact that they will have no legal rights to the new house.
Who is Eligible for a Joint Borrower Sole Proprietor Mortgage?
JBSP mortgages are often employed by families in which the parents borrow alongside their children to assist them in purchasing their first property. The son or daughter becomes the sole owner of the house and can revert to a regular single mortgage if their income has increased sufficiently to allow them to hold a mortgage on their own.
JBSP mortgages, on the other hand, can be beneficial to the newly self-employed or people with a bad or restricted credit history.
Couples looking for a buy-to-let home with one partner earning significantly less than the other, or maybe none at all, might also benefit from them. Under a JBSP mortgage, the higher earner can contribute to the mortgage but the property ownership and rent revenue remain in the lesser earner’s name, lowering the couple’s tax cost.
JBSP mortgages are also beneficial to those who operate a business or other venture. If the business collapses and the proprietor’s name appears on the title records, the residence may be seized or confiscated as payment for any obligation.
The Benefits and Drawbacks of Joint Borrower Sole Proprietor Mortgages
Pros
- A joint borrower sole proprietor JBSP mortgage enables an individual to obtain a larger mortgage than would otherwise be possible.
- If more than one party contributes to the deposit, it may also be feasible to obtain lower interest rates, as lenders often offer better terms to those who make larger deposits.
- Other applicants, such as parents, will not be required to pay a second-property stamp duty premium because they will not be registered on the title deeds.
- Unlike the government’s Help to Buy scheme, you are not limited to new build properties.
- JBSP mortgages can be utilized for residential, buy-to-let, and first-time buyer applications.
Cons
- If the connection between the joint borrowers fails, the non-legal owner may find it difficult to have their name removed from the mortgage.
- The individual who isn’t the legal owner is legally obligated to make mortgage payments but has no rights to the property and isn’t eligible to collect any financial advantages if it is sold at a profit in the future, for example. If the legal owner stops paying payments, the remaining parties to the mortgage are still obligated to pay the entire amount.
- Because you’ll have to verify more than one person’s income and identification, the application procedure will be more complicated than if you applied on your own.
- Having a JBSP financial agreement with someone can have a significant impact on your credit score. If the other member of your joint mortgage has poor credit, it can jeopardize your application for a joint mortgage, and missing or late payments during your mortgage term will appear on your credit report even if you were not responsible for the missed payment.
- They are not readily available, and you will almost certainly need to use the services of a knowledgeable mortgage broker to find one that meets your needs.
Read Also: HOW LONG DOES A MORTGAGE OFFER LAST: Understanding Mortgage Offers
Example of a Joint Borrower Sole Proprietor
Here’s an example of when a JBSP could be a good choice for a first-time buyer.
Assume you wish to buy your own home. You have a 10% deposit of £25,000 and are interested in a £250,000 flat. This means you’ll require a £225k mortgage.
Your present salary is £30,000, so even if you go to a lender with a borrowing limit of 4.5 times your income, the most you could borrow is £135,000, which is still far short of what you require.
However, if a second borrower (your parent) is added to the mortgage application and their annual salary is £60,000, the total income would be £90,000. They could be approved for a loan of up to £405,000 based on the same 4.5 times wage basis. This implies that you, as the buyer and sole owner, have a lot more leeway in deciding how much you want to spend on your new property.
Following on from this, the ideal scenario would be for you to purchase a property while your parents gradually lessen their financial contribution as your pay improves. This offers people who support the mortgage a seamless and simple exit plan, at least in theory.
Joint Borrower Sole proprietor Mortgage Lenders
One disadvantage of JBSP is that it is still a rather niche product, hence there aren’t many lenders selling such products (yet). This may change in the future, but the options are now rather restricted.
Lenders in this market can be tight with their age requirements for individuals assisting the property purchase. An older parent may have a more difficult time obtaining approval from a lender.
The Dangers of Joint Borrower Sole Proprietor JBSP Mortgages
There is also a financial danger. If the homeowner fails to make monthly payments, the non-owner whose name is on the mortgage is still obligated to make the instalments.
Problems can also emerge if the parent-child bond breaks down. It could be difficult for the non-legal owner to get out of the mortgage contract. The lawful owner’s son or daughter may be unable to accept payments on his or her own, which could result in a lengthy and costly judicial struggle.
Read Also: REMORTGAGE TO RELEASE EQUITY: How Remortgaging Works
Prospects for Earnings
Just because the non-owning party has a large amount of money to contribute to the mortgage does not guarantee that the lender will approve a JBSP mortgage. In most cases, the lender will want to be confident that the owner will be able to make the payments themselves in the near future. The owner must establish a substantial chance that their income will increase gradually over time; if they do not, the lender may reject the application.
Adapting to New Conditions
Even in a short 5-year period, a lot might happen, affecting the applicability of the JBSP setup. For example, if you, the sole owner, are now in a relationship or married and share your home with someone else. The other party may choose to contribute to the mortgage and have their name appear on the title papers.
Alternatively, the non-owning party of the JBSP mortgage (the parent/family member) may wish to purchase a house. A JBSP mortgage may limit their capacity to obtain the funds they require. They must persuade the lender that they have enough finances to cover the charges of both mortgages.
These changing circumstances may not always result in severe issues, but they are something to be mindful of.
How much Money can I Borrow?
This will differ depending on the lender. A JBSP mortgage may normally accommodate up to four persons, and while most lenders will cap the amount they will give you at 4.5 times the joint income, some may offer more.
Alternatives to Joint Borrower Sole Proprietor JBSP Mortgages
#1. Relatives
You could borrow money from family members (for example, your parents). However, keep in mind that if you fail to repay the loan, your connection with them may be jeopardized.
#2. Shared Ownership.
In these plans, you acquire a portion of the house (usually between 25 and 75 per cent) and pay rent on the rest. During your term in the property, you have the opportunity of increasing your share through a procedure known as ‘staircasing.’ However, unless you own 100 per cent of the home, you will be limited in what you can do with it, such as renting it out. Selling a shared ownership property might also be more difficult.
#3. Tenants in Common Mortgage
This sort of mortgage enables two or more persons to share ownership of a property. The proportions do not have to be equal. It can be a valuable tool for parents who wish to help their children get on the property ladder while still protecting their investment.
The Distinction Between Joint Borrower Sole Proprietor JBSP and a Guarantor Mortgage
A guarantor mortgage requires someone (typically a close family member) to guarantee that the mortgage payments will be made if the borrower fails to do so. With a JBSP, however, both partners are likely to pay the mortgage together. Despite being accountable for repayments, neither the guarantor nor the other borrower on the JBSP will have any legal rights to the property with either type of mortgage.
JBSPs are rapidly replacing guarantor mortgages.
Is it Possible to Remortgage with a JBSP?
A house purchased through a JBSP can be remortgaged. Indeed, these mortgages are perfect for low-income persons whose wages are expected to improve in the future. However, it is critical to be aware of any early repayment penalties.
