With increasing financial input from parents and other family members to help young people onto the property ladder, Joint Buyer Sole Proprietor mortgages are a popular option. We take a look at how they work and what they entail.
For many young people, buying their first home would be difficult without financial support from parents or other family members. A Joint Buyer Sole Proprietor mortgage allows them to buy their own home and have the title in their sole name, but still benefit from family contributions.
As well as helping to buy a first property, this type of mortgage and financial assistance can allow young buyers to secure a bigger property, or a home in a better location than might otherwise be possible.
The difference between a joint mortgage and a Joint Buyer Sole Proprietor mortgage
With an ordinary joint mortgage, there will be two (or more) people buying the property. The lender (mortgage provider) will require all buyers to be named on the title (ie the property will be held in the names of both people). This means that as well as each borrower being liable for the mortgage debt, they will also be legal owners of the property.
With a Joint Buyer Sole Proprietor mortgage, there will be only one person buying the property who will hold the property in their sole name, but one or more other people will take on responsibility for the mortgage debt (this is often a parent). Meaning that the property is owned by one person only, but more than one person is responsible for paying the mortgage.
The difference between a Joint Buyer Sole Proprietor mortgage and being a guarantor
Responsibility for mortgage payments
With a Joint Buyer Sole Proprietor mortgage, the parents or other individual(s) will contribute to the monthly mortgage payments. Whereas if they were merely a guarantor for the mortgage, then they would not be asked to make any payments unless the owner defaults.
With a guarantor mortgage, the guarantor’s income is not taken into account when assessing how much will be loaned. With a Joint Buyer Sole Proprietor mortgage, each borrower’s income will be considered. This means that parents’ income can be taken into account when calculating how much can be borrowed, which can be helpful if parents would like to contribute but do not have a large sum of capital to put towards a deposit.
Benefits of a Joint Buyer Sole Proprietor mortgage
As well as giving the buyer the benefit of sole ownership of their home, a Joint Buyer Sole Proprietor mortgage can help to reduce the Stamp Duty Land Tax (SDLT) charge when the property is purchased. First-time buyers currently do not pay SDLT on property under £300,000, whereas anyone purchasing a second property will be charged an additional rate of SDLT when buying. This means that if a parent (who already owns a property) and a child (who is a first-time buyer) buy a property together, then SDLT including the additional rate will be charged on the whole purchase. With a joint mortgage, both borrowers will always own the property together, which can mean a first-time buyer loses out on their tax-free allowance. With a Joint Buyer Sole Proprietor mortgage, the first-time buyer can own the property alone, enabling them to use their tax-free allowance, whilst still benefitting from the financial contribution and borrowing-power of their parent.
How many people can take out a Joint Buyer Sole Proprietor mortgage?
Up to four people can take out a Joint Buyer Sole Proprietor mortgage, with the property being in the name of just one of them.
Taking out a Joint Buyer Sole Proprietor mortgage
All of the individuals who take out the mortgage will be responsible for the repayments, meaning that if the person living in the property does not pay, the lender will look to recover any unpaid amount from the other borrowers – even though they are not on the title. If problems arise, this could affect the credit rating of all borrowers named on the mortgage. For this reason, it is important to only consider taking out this type of mortgage with someone you trust. You should also be aware that as you are not a legal owner, there is no guarantee that you will not benefit from any increase in the value of the property.
If you support your child and their partner to buy a property with a Joint Buyer Sole Proprietor mortgage and they separate, with your child leaving the property, you should be aware that you will still be liable to make the mortgage payments. However, your child will still be a legal owner and entitled to their share of the property when it is sold.
As with normal mortgages, lenders will sometimes limit a Joint Buyer Sole Proprietor mortgage to applicants who will be below a certain age at the end of the mortgage term, for example this might be 70 or 80 years old.
If you are buying your first property with the help of someone else, or you are a parent or other person helping someone with the cost of a mortgage to buy their property, please contact our Farnham based property lawyers on 01252 733770 or email us at firstname.lastname@example.org for assistance with your property purchase.