Say you've finally found the home of your dreams; perhaps you have even put together a deposit. But wait – there is no way you will be approved for a mortgage for this property on your current income. Help may be at hand with a Joint Borrower, Sole Proprietor (JBSP) mortgage, which mortgage brokers are reporting as becoming increasingly popular. But what is a JBSP, are you eligible to apply for one, what are the upsides – and the drawbacks? Read this guide to find out.
And, if you are new to the world of property and house buying and want to get a strong sense of the fundamentals, check out our comprehensive guide to buying a house or flat.
What is a Joint Borrower, Sole Proprietor mortgage and how does it work?
The Joint Borrower, Sole Proprietor mortgage works in exactly the way the name suggests: it allows multiple borrowers to contribute to the taking out and repayment of the mortgage without claiming ownership on the property – that is, without their names appearing on the deeds.
The JBSP mortgage typically allows for up to four people to be assessed for a single mortgage on the property (although this number varies depending on the mortgage provider), thus potentially increasing the amount the buyer can borrow. This doesn't mean that the bank will simply combine everyone's income – usually they will assess everyone, but consider two incomes. The other people's incomes will be considered as back-up or financial guarantee.
This mortgage type is not restricted to first-time buyers, and some (though not all) lenders will allow people of up to 80 years old to contribute, meaning that for some people, not only a parent, but also a grandparent can help out.
What are the advantages of a JBSP mortgage?
No stamp duty surcharge: as of 2016, all second home purchases are subject to a 3 per cent stamp duty surcharge, meaning that a joint mortgage with a family member who already owns a home puts them at a financial disadvantage. A JSBP mortgage is a way around this additional expense.
A chance to get the home of your dreams sooner: if your heart is set on a house you just can't afford right now, but will be able to pay the mortgage for soon (for example, you've recently started a successful business that isn't yet showing enough profit), and would like to live in for a long time, then the JBSP could be a good option for you. This is particularly relevant for people who aren't interested in property as an investment, and don't want to move once they have a long-term home.
No property type restrictions: unlike government equity loan schemes such as Help to Buy, this is a full commercial mortgage that allows you to purchase whatever home you want, not just new builds.
It can work for a buy-to-let investment: if you already own your home but want to buy a second property for buy-to-let purposes, then having someone else (a family member or partner) on the title deeds, but yourself as the mortgage applicant, will again help you avoid the 3 per cent surcharge on second homes and buy-to-lets.
It can help business owners protect assets: if you are a business owner and want to safeguard your home, it could make sense to have your partner's name (but not your own), on the deeds. If the business were to fold, you would be able to protect your home from being seized for debt repayment purposes.
What are the drawbacks of a JBSP mortgage?
Financial risk for everyone involved: this applies especially to the parents, or whichever family member has agreed to be the non-owning applicant. If the home owner defaults on their payments, whoever else is on the mortgage is still liable for the repayments. It also leaves any unmarried non-owner partners hugely vulnerable in case of a relationship breakdown.
It could lull you into a false sense of security: be absolutely honest with yourself – if the financial assistance from your family were to cease overnight, what would you do? Would you still be able to keep your home?
Family fallouts could make things messy: family relations can get messy, sometimes quickly. If family members on a JBSP mortgage fall out, taking someone's name off the mortgage will cost money, to speak nothing of the financial shock of a suddenly higher mortgage. Only families with very stable relationships should consider this option.
It can be tricky to get approved: applying for this type of mortgage can be trickier than a regular mortgage (see below).
The application process for a Joint Borrower, Sole Proprietor mortgage
One important thing to understand about Joint Borrower, Sole Proprietor mortgages is that they are not intended as a scheme in which someone else pays your mortgage indefinitely. In most cases, the JBSP is intended for family members who wish to help out for a set period of time, until you are able to take full financial responsibility for the house.
Most lenders will need to be satisfied that you, the buyer, will eventually be able to make all of the repayments yourself, meaning that an important part of the assessment process is demonstrating that your income is likely to grow steadily over time. In fact, about half of all applications for JBSP are turned down because the buyer has not been able to demonstrate this likelihood of income growth.