In this brief guide, we are going to delve into what a joint borrower sole proprietor mortgage is and how it can potentially help you get on the property ladder.
For many of us, we cannot afford to put down the huge mortgage deposits required by the mortgage lenders but there are a few of us who have parents or family members who can afford to put down the mortgage deposit but do not want have to incur further stamp duty charges (at an additional rate) and potential capital gains tax liability.
In this case, a joint borrower sole proprietor mortgage is the answer.
What is a joint borrower sole proprietor mortgage?
A joint borrower sole proprietor mortgage is a mortgage where the incomes of two people are considered for the mortgage affordability checks but only one person is then left on the mortgage deed. This means one person will own the property.
This means one party (usually a parent) can avoid having to pay stamp duty at an additional rate if they already own a property or avoid having to pay capital gains tax somewhere down the line.
You should seek independent legal advice before taking out a joint borrower sole proprietor mortgage.
Why may you take out a joint borrower sole proprietor mortgage?
To help a family member on to the property ladder
To avoid stamp duty liability
To avoid capital gains
To protect their assets
The key reason why most people may opt for a joint borrower sole proprietor mortgage is to help their family members and these are usually because of one or more of the reasons below:
- The family member is newly self-employed and does not have more than 1 years worth of accounts and will also find it very difficult to get a standard mortgage due to this.
- The family member has a small mortgage deposit and needs help to improve their mortgage affordability.
- The family member has bad credit and hence will not meet the mortgage lenders mortgage affordability requirement without an increased mortgage deposit.
- The family member does not have any credit history as they have been in the country for less than 3 years.
A helping hand
A joint borrower sole proprietor mortgage will usually be used to support those who cannot afford a mortgage on their own. By having another person considered when the mortgage affordability checks are being carried out improves the mortgage affordability of the borrowers incredibly.
This also gives the mortgage lender more security knowing that there are now two people who are liable for the mortgage.
Does a joint borrower sole proprietor mortgage allow you to borrow more?
Yes, a joint borrower sole proprietor mortgage allows you to borrow much more. When looking into your mortgage affordability, a mortgage lender will consider the income of all borrowers using their income multiple.
This means that a joint borrower sole proprietor mortgage will allow you to potentially borrow more money than if you were to get a mortgage by yourself.
What are the stamp duty implications of a joint borrower sole proprietor mortgage
A joint borrower sole proprietor mortgage will have no stamp duty implications if you are a first-time buyer and have never owned any other property in the world.
They will also have no implications if you have owned any property elsewhere in the world as you will not have your name on the mortgage deed and hence will not own any share in the property.
This means the additional person on the joint borrower sole proprietor mortgage will not have any additional stamp duty tax( currently at an additional rate of 3%) to pay if they had another person on the mortgage and would not have any potential capital gains tax as they will never be able to sell the asset for any profit.
Can you use a joint borrower sole proprietor mortgage for Buy to let?
Yes, you can use a joint borrower sole proprietor mortgage for a buy to let property as this will allow you to potentially pay less tax by having the spouse or partner with the lower income to be named on the deed and yet allow both parties to be considered when the buy to let mortgage affordability checks are being carried out.
Can I use joint borrower sole proprietor mortgage to avoid stamp duty?
Yes, you may be able to use the joint borrower sole proprietor mortgage to avoid stamp duty if your partner is a first-time buyer and wants to buy a property.
You can both be considered for the mortgage in regards to the mortgage affordability checks but have only one person’s name on the property deeds to avoid paying stamp duty at an additional rate.
Can I use the joint borrower sole proprietor mortgage to protect my assets?
Yes you can use the joint borrower sole proprietor mortgage to protect your assets
A joint borrower sole proprietor mortgage is very good for entrepreneurs and business owners who want to protect their assets from any business liabilities.
If a business has debts and the business owner has assets this can usually be seized to repay those debts but with a joint borrower sole proprietor mortgage, a business owner can simply but the home in their partner’s name although they are considered for the mortgage affordability and hence protect their home b not having their name on the property deed.
How to get the best rates on a joint borrower, sole proprietor mortgage?
To get the best rates on a joint borrower, sole proprietor mortgage you will need to both have good credit scores, a sizeable mortgage deposit and be buying a standard construction property (in contrast to buying a non-standard construction property).
As a joint borrower, sole proprietor mortgage is very similar to a joint mortgage, the mortgage you will be able to get here follows the same principles. The mortgage lenders offering these type of mortgages are limited in number and hence a mortgage broker may be best suited to help you search the mortgage market.
Can I get out of a joint borrower, sole proprietor mortgage?
If you are the non-owner in a joint borrower, sole proprietor mortgage and the relationship with you and the property owner breaks down or for whatever reason you want to get out of the mortgage then you may find this very difficult if you do not have an agreement in place covering how this will happen if the need arose.
The final decision on if you will be allowed to get out of this kind of mortgage usually lies with the mortgage lender and the mortgage lender may not allow you to get out of the mortgage if they don’t believe the property owner will be able to afford the mortgage on their own.
What you should consider before taking out a joint borrower, sole proprietor mortgage
Before taking out a joint borrower, sole proprietor mortgage you should consider the below points:
If you are the none owner you should note that this mortgage will be on your credit file and may affect your ability to gain further credit such as a remortgage on your own property.
If you go on to get married your partner may want to be listed on the mortgage deed as they may contribute to the mortgage payment.
A financial relationship will be made between both parties on the joint borrower, sole proprietor mortgage, this means that you should ensure you keep up on your monthly mortgage repayment as a negative credit file from yourself could affect the other party and vice versa.
The mortgage lender may set a cap on what age limit it will allow its borrowers to have and if you have a borrower who is approaching retirement age you may find that the mortgage lender may insist on a reduced mortgage term.
Can you afford the joint borrower, sole proprietor mortgage alone?
If you intend to simply use someone as a non-owner in order to pass the mortgage affordability requirements and get a mortgage you should be aware that both parties will be jointly liable for the mortgage.
This means that if you fail to keep up n your monthly mortgage repayments the mortgage lender will go after the other party.
To ensure you can repay the mortgage on your own you should look into your finances in detail.
A mortgage broker may be able to help you do this.
Some of the other costs you may also need to consider aside from your monthly mortgage repayments include:
Your home insurance
Your council tax
Your lifestyle expenses such as restaurants, gyming etc
How will the non-owner exit the mortgage?
Before agreeing to a joint borrower, sole proprietor mortgage you should seek independent legal advice in order to understand your obligations and how the non-owning party can geta out of the mortgage if this is the plan.
You should agree on how this will happen before getting the mortgage and this should be put in writing to avoid any disputes down the road.
How many people can be on a joint borrower, sole proprietor mortgage
Most mortgage lenders will allow up to 4 people on a joint borrower, sole proprietor mortgage although most mortgage lenders will only consider the two highest incomes when looking at the mortgage affordability of the group.
Is a joint applicant, sole proprietor mortgage for residential use only?
No, this mortgage can be used for buy to let mortgages and is commonly used for student buy to let mortgages.
Mortgage lenders offering a joint borrower sole proprietor mortgage
Below are some of the mortgage lenders offering this type of mortgage:
Marsden building society
Furness building society
Government schemes which can help you get a mortgage
There are lots of government schemes which may be able to help you get a mortgage, they include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
Using a mortgage broker
You may want to consider using an independent mortgage broker to get a mortgage.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 11,000 mortgage products. This may have some advantages than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your remortgage is indeed a possibility before you make a full mortgage application. Once you have found a home you want to buy or are satisfied with the mortgage offer for your remortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer. Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it, they will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.
In this brief blog, we discussed the “joint borrower sole proprietor mortgage”. If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.