With property prices soaring, and half the number of first-time buyers there were versus 20-years ago, a joint borrower sole proprietor mortgage is a great solution for would-be buyers. This specialist mortgage is a way for a family member or friend to help a buyer increase their affordability, without handing over any cash. It's a particularly good option for buyers who are still early on in their careers, so might be on lower salaries for the next few years, but expect their earnings to rise. At Tembo, we call joint borrower sole proprietor mortgages an Income Boost.
There are many benefits of a joint borrower sole proprietor mortgage, especially if you are looking to buy as a single person, or if you are being priced out of the property market in your local area (read Grace’s story about how she used an Income Boost to buy in High Wycombe as a single buyer).
By adding a loved one or friend’s income onto your mortgage application, you are likely to be eligible for a larger loan. Lenders tend to lend between 4-5x your income as your loan. So, if you were earning £25,000, you could have a loan of roughly £112,500. If you had a deposit of £30,000, this could give you a total buying budget of £142,500.
A joint borrower sole proprietor mortgage allows you to add extra income onto your mortgage application. So, let’s say your Mum wants to help you buy your home. She has an income of £40,000. By adding this income onto your application, the lender could lend you roughly £292,500. (bear in mind that the lender will take into account your Mum’s expenditure, including any current mortgage payments she may have, to ensure that the mortgage is affordable). Adding on your £30,000 deposit, this would allow you to purchase a property worth around £322,500.
In this instance, a joint borrower sole proprietor mortgage could allow you to increase your budget by £180,000. That’s an extra bedroom, a better location or even a garden!
A great benefit of a joint borrower sole proprietor mortgage is that even though you are adding the income of another person to the mortgage, only you will be named on the deeds to the property. This is useful, as the buyer will not have to go through the process of ‘buying out’ the other applicant from the property if the borrower wishes to leave the mortgage arrangement. Unlike a Joint Mortgage, a joint borrower sole proprietor mortgage doesn’t allow the family member helping out to have any ownership of the property - so the buyer legally owns the property alone. The mortgage itself is secured on the house.
Unlike more traditional guarantor mortgages, a joint borrower sole proprietor mortgage does not mean that the family member or friend has to put down their property as collateral in case the buyer can’t pay the mortgage payments. Traditional guarantor mortgages see that the guarantor will be asked to offer up some collateral to the mortgage lender. This is either savings or a chunk of their own equity that they have built up in their home to cover the buyer’s debt. With a joint borrower sole proprietor mortgage, the family member does not have to put down any existing property or savings as collateral. Rather, if the buyer is unable to pay, they will be jointly liable for the cost of the whole mortgage, and any missed payments will show on their credit file in the same way as the buyer. The lender will assess the family member’s affordability prior to lending, so they can confirm that this would be affordable for them.
A joint borrower sole proprietor mortgage really is a stepping stone to financial independence for a buyer. When a buyer gets a pay raise, or starts another job on a higher salary, they may be eligible for the mortgage by themselves.If the buyer is then able to afford the property on their own, when they come to remortgage, they’ll be able to take their family member off the mortgage. The family member will no longer be liable for the monthly mortgage repayments. If the family member then wanted to purchase a property, the buyer’s mortgage would not be taken into account by the lender when calculating their affordability.
As the family member is not on the deeds to the property, the buyer keeps their first time buyer status - this means, they will be able to take advantage of any first time buyer reductions in stamp duty land tax. If the family member was the legal owner of the property (for example, in a joint mortgage with their child), the child would have to pay stamp duty at the standard rate on the property, and would lose all of their first time buyer benefits.
Ready to see how a joint borrower sole proprietor mortgage can help you onto the ladder? Make a plan here.