Could a Joint Borrower Sole Proprietor Mortgage Help Your Kids Take Their First Steps on the Property Ladder?
As an independent mortgage advisor, I am frequently asked by generous and supportive parents about how they can help their children buy their first home.
(Of course, their generosity and support could be fuelled by a burning desire to get the kids out from under their feet, particularly after long periods of lockdown. I’m a parent myself, so it’s a desire I have some sympathy with!)
If buying the kids their own home outright is not an option, a joint borrower sole proprietor (JBSP) mortgage could offer an alternative route for parents to help their children onto the property ladder.
What is a JBSP mortgage?
A JBSP mortgage is a type of mortgage that enables different people – such as parents and children – to pool their finances and buy a property. This could be helpful if your child earns a lower salary, or finds it difficult to save enough for a deposit to bridge the gap between their mortgage capacity and the desired purchase price.
What this means in the case of Mum and Dad helping their daughter to buy a flat, for example, is that under a JBSP mortgage, both parents and child would be responsible for the mortgage.
However, the daughter would be the only person named as the legal owner of the property, allowing a welcome sense of independence and ownership. Having only the daughter’s name on the property deeds could also benefit Mum and Dad, since under current rules, they could avoid the stamp duty charge levied on second properties.
How is affordability calculated for a JBSP mortgage?
The current income, expenditure, and debt for both the parents and child would be calculated together to assess affordability for a JBSP mortgage.
Although the specific criteria will vary from lender to lender, as for all mortgage types, it is worth noting that a JBSP mortgage term is restricted to the eldest applicant’s age. So, if Mum or Dad (whoever is the older) is 67 and retired, for example, lending options will be more limited than if they were 50 and working full-time.
What potential risk could be associated with a JBSP mortgage?
If the daughter were to default on her monthly JBSP mortgage payments, then as joint borrowers, Mum and Dad would be liable for the repayments.
Clearly, this could lead to friction within the family, so as with any major financial decision, everybody will need to think carefully before deciding whether or not to take out a mortgage. For JBSP mortgages in particular you would also need to seek independent legal advice too.
Contact me at My Mortgage Angel for fee-free advice about mortgages and protection.