With soaring deposits, slow wage growth and high property prices, it’s no wonder that many millennials turn to their parents for help – but not everyone can offer a lump sum towards a deposit.
For those who can’t, getting a joint mortgage or acting as a guarantor has long been a consideration. But recent tax reforms have made these options less attractive for parents.
There are now signs, however, that so-called ‘joint borrower sole proprietor’ (JBSP) mortgages are becoming popular, with brokers reporting a significant increase in enquiries in recent months.
Here, we take a look at this niche product and whether it could be a valuable option for parents who want to help their children get on to the property ladder.
- If you’re thinking of helping your child buy their first home, you can get impartial, expert advice on your mortgage options by calling Which? Mortgage Advisers on 0800 197 8461.
What is a JBSP mortgage?
A joint borrower sole proprietor mortgage allows a parent to help their child buy a home by joining their mortgage. But unlike a standard joint mortgage, the parent isn’t named on the title deeds.
Previously, these types of agreement were quite niche, primarily used by parents who were concerned about needing to pay capital gains tax when the property was sold.
However, reforms to stamp duty have now made this kind of deal increasingly attractive, with one broker claiming enquiries now arrive on a daily – rather than monthly – basis.
The benefits of a JBSP mortgage
In April 2016, a 3% stamp duty surcharge for people purchasing second homes and buy-to-let properties was introduced. This placed a significant obstacle in the way of parents wanting to directly help their child get on to the property ladder.
The main attraction of a JBSP mortgage is that parents are not named on the title deeds so won’t need to pay the stamp duty surcharge, which can run to thousands of pounds.
Brokers say enquiries have also increased since stamp duty was abolished for first-time buyers purchasing homes priced up to £300,000.
Again, taking out a standard joint mortgage would mean buyers would miss out on this tax cut because they wouldn’t be buying the property on their own.
JBSP mortgages: how affordability is assessed
The ultimate aim of this type of mortgage is that the child will end up being able to pay the mortgage on their own.
This means that lenders will be more likely to approve an application if the child can show that they’re likely to have significant wage growth in the upcoming years as their career progresses.
This consideration, along with the overall financial stability of the parent, are crucial to having a mortgage granted.
One drawback, however, is that older parents might struggle to get approved as lenders tend to only offer mortgages that run to 70 or 75 years old.
There’s also the question of what happens if the relationship between parent and child breaks down.
With this type of deal, parents could find it difficult to have their names removed from the mortgage agreement if relations sour.
Who offers JBSP mortgages?
While mortgage brokers are seeing an increase in the number of enquiries about JBSP mortgages, they’re still by no means available across the market.
Of the big players, only Barclays, Metro Bank and Clydesdale and Yorkshire offer these deals (up to 90% loan-to-value), though mortgages are available through various building societies – including Market Harborough, Furness, and Hinckley & Rugby.
If you’re considering this kind of mortgage, it’s a good idea to take advice from a mortgage broker, as smaller building societies who offer a more human ‘case-by-case’ underwriting process may be more receptive to applications.
Popularity of JBSP mortgages
At this stage, it’s difficult to say how popular JBSP mortgages are becoming, or indeed how they’re likely to progress in future, as UK Finance doesn’t collect data in this area.
There are signs that lenders are beginning to take JBSP deals more seriously, though, with Family Building Society launching a new mortgage late last year after increased demand from brokers.
Getting accepted is by no means a sure thing, however.
According to Family Building Society’s chief executive Mark Bogard, half of applications are turned down due to the applicant not having a job that would generate enough income over time, or the lack of a sufficiently direct family connection between the applicants.
As with all specialist mortgage products, it’s best to shop around: while there isn’t significant competition between lenders you might be able to find better rates on a different type of deal.
Alternative ways to help your child buy a home
There are a range of other ways you could help your child buy their first home, with these options being among the most popular:
- Guarantor mortgages: specialist guarantor mortgages allow you to use your savings to secure your child’s loan, with the Family Springboard mortgage offered by Barclays among the most well-known. Lenders will require you to lock your savings up for a set period, which could mean missing out on the best savings rates elsewhere.
- Using your home as security: some lenders offer deals where you can use equity in your home as security for your child’s mortgage – but be careful, as your home as well as theirs will be at risk if they default.
- Buying a home together: as mentioned earlier, you could take out a traditional joint mortgage, which will help you retain control of your money. You will, however, be financially linked to your child, and you could face a big stamp duty bill.
- Helping them with their deposit: when people think of the ‘bank of mum and dad’, they generally think of parents gifting or lending money to their children to help them with a deposit. If you’re taking a longer-term approach, you could consider encouraging your child to open a lifetime Isa at the age of 18, which you can then contribute to. Deposits into this type of account can gain a 25% bonus when your child comes to buy a house.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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