Joint Borrower Sole Proprietor Mortgage
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Joint Borrower Sole Proprietor Mortgage
Rita joins to talk all about a Joint Borrower Sole Proprietor (JBSP) mortgage.
What is a JBSP mortgage and how do they work?
It stands for Joint Borrower Sole Proprietor mortgage. It’s often used in today’s lender terminology. Some people still link it to guarantor mortgages, but in essence, they don’t really exist now. This is the new way of phrasing it.
It’s a way of improving your borrowing potential. Potentially you’re a First Time Buyer who can’t quite reach the affordability to get onto the property ladder. You might have a deposit, but you just need a secondary source of income to join you on the mortgage as the ‘joint borrower’.
The ‘sole proprietor’ part is that only you live in the property and you legally own the house. The secondary person who’s willing to be on the mortgage is equally liable should you not be able to make the mortgage payments. The lender will feel that there’s less risk attached to that making them more willing to lend.
Nine times out of 10, you’d have a conversation with your family members, particularly your parents, to ask if they would join you on the mortgage. Naturally, they have to share the details of their financial commitments as part of this, so I would always say you need a good, strong relationship with whoever is willing to go on the mortgage.
Some parents may not feel so comfortable sharing their financial information with their child – and vice versa, because it is a joint liability. You do disclose everything to each other as well as to the bank. But it’s a good way to get you started as a homeowner.
What criteria do you need to meet for a JBSP mortgage? Who is eligible?
The criteria is ideally a clean credit score and you have to have regular earnings in an employed or self-employed role. It’s the same thing as a standard mortgage.
If you’re employed, you need to show three or four months pay slips showing regular earnings in that employed role. If you’re self-employed, you need to show at least a minimum of two years’ accounts submitted to HMRC, to show your net profit.
You also need a source of deposit, which could be your own savings. Or, perhaps the party that’s going to join you on the mortgage, such as mum or dad, might look to gift the deposit to you.
Those are the tick boxes you need to meet for the lender. Anyone could apply as long as you fit those categories.
Do you pay stamp duty on a JBSP mortgage?
There’s always a lot of confusion around this. The typical person that may go for this proposition is a First Time Buyer. And as you know, there are stamp duty thresholds up to a certain amount where you don’t have to pay stamp duty if you’re a First Time Buyer. Obviously that could change over time [podcast recorded in July 2024].
However, when you are borrowing jointly with another person, because you own the property in your own legal right you don’t have to pay stamp duty.
That’s the good news. In this scenario, perhaps your dad is on the mortgage but not on the deeds to the property. He’s not a legal owner of that entity. He’s just supporting you to get on the property ladder and help you with affordability.
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What’s the difference between a joint mortgage and a Joint Borrower Sole Proprietor mortgage?
With Joint Borrower Sole Proprietor, you own the house. It is effectively your mortgage, but you’re getting the support from a parent to help uplift your affordability.
On a standard joint mortgage, you are committing to buying the house together. In our example, where the child is the First Time Buyer and dad goes on the mortgage – that’s Joint Borrower Sole Proprietor.
There are different aspects that the lender would look at. Dad would be older, naturally, and lenders normally cap how long you could take a mortgage for. They would have to understand what situation Dad is in. Is he working? Is he retired? All those income factors could be taken into account.
Also, the length of the mortgage is a factor. Obviously you’re a younger applicant, but with lower earnings. That’s all looked at behind the scenes.
But with a joint mortgage, a child and father might be buying the property together and they also own the house together. He would also be named on the property. That’s the difference.
If dad already owns a house, you would pay stamp duty because he’s not a First Time Buyer. So it’s actually easier to do it as a Joint Borrower Sole Proprietor if you are looking to buy it as your own property.
What’s the difference between a guarantor and a JBSP mortgage?
It’s essentially the same thing. It’s just that the terminology is different.
They used to be called guarantor mortgages in the past. The slight difference would have been that the parent, who’s normally the one supporting the child, would guarantee that they would help pay the mortgage should the child not be able to afford it.
It wasn’t necessarily based on the parent’s income, instead it was on their property. So if the parent owned a house with no mortgage on it, the bank would potentially use that as security in case the mortgage payments aren’t met.
That’s where the guarantor terminology came in. But that evolved over time. Banks didn’t necessarily want to make people homeless, so they scrapped the idea of a guarantor and called it Joint Borrower Sole Proprietor. There’s a bit more stability.
With a dad on the child’s mortgage, it’s just his income that’s boosting the mortgage. If they couldn’t afford to pay, he’s equally liable. But the worst case scenario is that the child would lose their property in a repossession. Dad would also have a blip on his credit file, but he’d still have somewhere to live.
It changed as the industry evolved in terms of what’s allowed and keeping things fair, while boosting First Time Buyers onto the property ladder.
Can I get a JBSP mortgage with bad credit?
It depends what that bad credit looks like. If you’ve had several defaults and County Court Judgements, it’s very unlikely that you are going to get a JBSP mortgage.
The lender is taking on a risk here. You haven’t quite got the affordability and they are accepting that a joint borrower is coming on board with you, but ultimately they expect you to be able to afford those mortgage payments.
If you haven’t had a great history of handling money, it doesn’t look good. But if the blip is from a mobile phone company and there was one missed payment four years ago, they may accept that.
So don’t let it put you off. Speaking to a mortgage adviser would help you assess the situation and present it to lenders who offer Joint Borrowers Sole Proprietor propositions. Remember that not all banks offer this. Each one is going to have their own criteria and views on bad credit.
How does remortgaging a JBSP mortgage work?
Let’s say you take out a five year fixed rate, which is typical. Yourself and dad are on the mortgage and you sustain those mortgage payments. The idea is generally that you’re on a career ladder – say, you’ve graduated, you’ve saved your deposit and you’re now looking to progress in your career. You’ll potentially be earning a lot more in five years time.
At that point, you’d have a conversation with your mortgage advisor and see if you could take the mortgage on in your own right.
At that point, there’s no secondary party involved. You could then go to the open market saying, I could afford this mortgage. To get that remortgage, we go to a bank and explain what you earn and your mortgage balance. Then there’s a little bit of legal work behind the scenes to take dad off the mortgage. You still own the property independently.
A remortgage would possibly involve borrowing more money, for example, or simply switching over to a better deal.
What are the pros and cons of a Joint Borrower Sole Proprietor mortgage?
It is designed for a typical First Time Buyer at the start of their career. They’ve just about got a deposit or they might be fortunate enough to have a gift from family to get them on the property ladder, but their earnings aren’t quite there for a mortgage.
It’s a good boost to get you on the property ladder. There are various different names – Joint Borrowers Sole Proprietor, or Income Booster, for example, where the parent could boost your affordability.
A parent could use some of their savings, but don’t want to fully part with that money. They could be a deposit booster to bridge the gap between what you could borrow on your earnings and what you need for a home. A parent might uplift your deposit, but in a few years will want it back. It’s almost like a family loan, if you like.
In terms of downsides, it’s a huge commitment for the parent to come on board. They might be at the tail end of paying their own mortgage, or they’ve just finished it and then they have to start all over again.
It involves huge trust between the two parties. Ideally the First Time Buyer wants to pay those mortgage payments independently, but they still need a contribution from the parent. Also, because it’s based on the eldest applicant, it could be a shorter term than if you did it on your own – because you’re younger. A shorter mortgage means your monthly payments are higher.
It’s really important to look at various lenders who offer these propositions to see who will allow you to take the longest term. It comes down to the person joining you on the mortgage – what’s their situation and how old are they?
Maybe we could elongate the term under their criteria to keep those payments affordable for you. There are lots of different circumstances. It’s personal to you, but we’d point out the pros and cons so you could decide what’s right for you.
How can a mortgage broker help?
Going to a mortgage broker just allows you to assess all your options, including things that you might not have even thought about because you didn’t even know they existed.
This is certainly one of the options to get on the property ladder. It’s not for everybody, though. We would talk to you about affordable housing schemes or anything that the government may bring out as an incentive.
We know the lenders and how they want things to be positioned. We could then present that to you. It could be a minefield as to where to go and all the terminology, and an advisor breaks it all down for you.
What I would say is, again, is that family trust is crucial. You do need to share your financial information with each other. It’s not a comfortable conversation to ask a family member for money to boost a deposit or by joining you on the mortgage. You do need to understand their financial situation and to share that with the advisor.
I like to meet the parents as well, so that they understand everything. They may have different questions as well. It means everybody’s on the same page.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.