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What is a joint borrower sole proprietor mortgage?
A joint borrower sole proprietor mortgage is where the names on the mortgage differ from the names on the deeds of the property.
A common example of this is when one applicant is the owner of the property but there are multiple people named on the mortgage with the obligation to make sure it is paid.
A use for this may be an applicant buying a property that is beyond the amount that they would be able to afford on a standard mortgage. By adding on an additional borrower (for example, their parents, adult child, sibling etc), they may then have enough borrowing power to buy the desired property as multiple people will be responsible for paying the mortgage.
It is usually a condition that the ‘joint borrower’ who will not be an owner of the property will also not be allowed to live in it. The lender will also assess this person’s commitments along with their income to ensure they will be adding to the affordability capacity.
All parties will be equally responsible for making sure that the mortgage is paid on time if it isn’t, this will affect the credit files of all applicants. To find out more about your credit file, visit Check My File.
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Do all lenders offer joint borrower sole proprietor mortgages?
No, not all lenders offer joint borrower sole proprietor mortgages. They may be deemed somewhat specialists with the majority of lenders making it a condition that all borrowers on the mortgage are also named on the deeds too.
Fortunately, multiple specialist lenders will now offer these. They will need to know the full financial background of all applicants so they can be sure that the mortgage is affordable and sustainable for all applicants
What are the benefits?
The main benefit of a joint borrower sole proprietor is it can allow someone to buy a property that they may not have otherwise been able to on their own. This is because you add on another borrower to the mortgage but not to the deeds of the property.
The reason to not add the other party to the deeds of the property is that they are often property owners themselves and adding them to the property in question would incur secondary stamp duty.
If for example, the applicant is buying the property and a first time buyer, depending on the price of the property, there may not be a stamp duty charge at all. If this person added a parent to the deeds when they already have their own home, this would then mean that stamp duty would be paid at the highest amount.
This could seem unfair as the first time buyer has now lost their stamp duty allowance and the other party is being charged at the highest rate of stamp duty and they may have any interest in future sales proceeds, only choosing to go on the mortgage to help out.
A joint borrower sole proprietor mortgage is a way of having multiple applicants but the stamp duty liability is based on the person going on the property deeds. It is always best to take legal advice when exploring stamp duty.
What are the negatives?
Like anything, along with positives, there are also negative things about joint borrower sole proprietor mortgages.
For instance, if an applicant is putting their parents on the mortgage (but not the deeds) the term of the mortgage may be shorter than if they were doing it alone increasing the monthly payments.
This is because lenders have a maximum age that they can lend to for all applicants so they work off the age of the oldest. If the lender’s maximum age was 75 at the expiry of the mortgage and the oldest applicant was 58, this would mean a maximum term of 17 years. The youngest applicant may have been able to get a 35-year term had they done this on their own.
Another downside is that depending on what happens with the main applicant/owner’s income, they may not be in a position to refinance and remove the joint borrower so may remain dependent on this person for the term if they want to remain in a similar property.
The joint borrower sole proprietor mortgage may also have a negative effect on the ‘joint borrower’ too if they want to take a separate mortgage in the future as the monthly payment on the existing mortgage will be factored into the affordability assessment by the future lender.
For instance, if someone was to go on to their parent’s joint borrower sole proprietor mortgage to help them out and the monthly payment was £1,000, in the future when they take their residential mortgage, this £1,000 per month would be a commitment to the applicant as they would be equally responsible for 100% of the payment.
This may impact how much they could then borrow. This is why taking professional advice is so important.
Impact to all applicants
It is also very important to note that any problems making the mortgage payments will impact all applicants. The mortgage is the joint responsibility of all applicants, not just the person on the deeds so any mortgage arrears, defaults etc will end up on each borrower’s credit file.
Anybody agreeing to go on one should know that it is not a token gesture to make the mortgage attainable but a large commitment with implications if it is not paid. Independent legal advice is recommended.
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Do I need a joint borrower sole proprietor mortgage broker?
Although it is unlikely that any mortgage brokers solely arrange joint borrower sole proprietor mortgages, you should certainly seek an adviser that has experience arranging them.
This is because not all lenders offer the mortgage on this basis and it’s important to understand the financial background of all applicants, not just the person that will be going on the deeds. The situation for the ‘joint borrower’ may also impact the terms of the mortgage, for example, if they are older and the term needs to be shorter.
Your mortgage adviser will be able to tell you the full terms of the mortgages available to you.
Joint borrower sole proprietor mortgages may be the solution for buying a property outside of budget if you have close people in your life that will contribute towards the payments and for the lender’s criteria.
There can be negatives such as relying on another party to get the amount needed, potentially shorter mortgage terms and more people that can be negatively affected if the mortgage was not paid.
You should always take professional advice when considering a mortgage. If you would like I NEED ADVICE to match you with a mortgage adviser that can give you bespoke advice around joint borrower sole proprietor mortgages, please complete the contact form.