A joint buyer sole proprietor (or JBSP) mortgage allows two or more people – often family members – to buy a property together. Crucially, only one person is named on the title deeds as the owner of the property. This type of mortgage is most often used by parents who want to help their child to get a foot on the increasingly difficult property ladder.
How exactly does a JBSP mortgage differ from a normal mortgage?
In many ways, a JBSP mortgage is very similar to a standard mortgage. The borrowers will face the same procedures and scrutiny of lenders and must be able to satisfy the lending criteria. However, the main and most important difference is that only one person is named as the owner of the property. The mortgage lender will usually insist that that person lives at the address while the second borrower must not live there.
Both parties face joint liability for mortgage repayments, however. This means if one of you defaults on the payment, the other person is liable. As such, non-repayment can affect the credit profiles of both parties. Some mortgage lenders also have an age restriction in place on JBSP mortgages. In many cases, applicants may not be older than 70 when the term ends.
Why is a JSBP mortgage often used by parents?
The JSBP mortgage provides a perfect opportunity for parents or family members who want to help their children buy a property but do not want a long-term interest in it. This type of mortgage is only usually intended as a short-term solution. It can be used to help a loved one get on the property ladder at a time when their earnings or savings would not allow it. However, once that person is more financially stable or able to cover the repayments themselves, the child may apply for a new mortgage and the parent can exit the agreement.
A JBSP mortgage is also beneficial to parents because they do not incur the usual 3% stamp duty surcharge that comes with owning a second property. Figures show the average age of first time buyers in the UK stands at 31 to 32, compared to 28 in 2007, proving the difficulties of getting on to the property ladder today.
Are there any pitfalls of a JBSP mortgage?
One of the key pitfalls is that all borrowers have responsibility for the repayments, meaning their own personal credit score could be in the hands of others. The age restrictions mentioned above could place limits on the term available, while a mortgage lender gets to restrict who lives in the property.
On a more personal level, taking out a mortgage with another person is a big undertaking and is not one that should be taken lightly. Getting joint borrower sole proprietor mortgage legal advice from qualified experts such as https://www.parachutelaw.co.uk/joint-borrower-sole-proprietor-mortgage-legal-advice Parachute Law is strongly advised. Exit strategies should be planned in advance and all parties must understand and respect the agreement to prevent any fallouts or breakdowns in communication. This type of mortgage should only be entered into with someone you trust and whose financial situation is stable.
How does a JSBP mortgage differ from a guarantor mortgage?
Under a guarantor mortgage, a person agrees to take on responsibility for your repayments should you be unable to pay. This guarantor, usually a parent or close family member, does not own the property but the mortgage is secured against their own property, which goes up as collateral. In a JBSP mortgage, the mortgage agreement is based on income rather than assets such as property.