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Understanding a Joint Borrower Sole Proprietor (JBSP) Mortgage

  • August 10, 2023

Navigating the labyrinth of the mortgage world can sometimes feel overwhelming, especially when confronted with terms that might not be immediately familiar. One such term that’s gaining traction in recent years is the “joint borrower sole proprietor” (JBSP) mortgage.

So, what exactly is it, and how does it differ from conventional mortgage products? Let’s delve into the specifics of JBSP mortgages.

Multiple hands with jigsaw pieces representing a JBSP (Joint Borrower Sole Propreitor) home purchase with the help of family

What is a Joint Borrower Sole Proprietor Mortgage?

In simple terms, a JBSP mortgage allows two (or more) people to jointly secure a mortgage, but only one of them is listed as the property owner. Essentially, while both parties are responsible for the mortgage repayments, only the ‘sole proprietor’ person holds the title deeds and legally owns the property.

However this is a bit misleading as the ‘Sole Proprietor’ can actually be one or two people in most cases.

In simpler terms – depending on the lender you can have up to a total of 4 people on the mortgage (‘borrowers’) and all 4 incomes taken into account and up to two owners (‘proprietors’).

Why Consider a JBSP Mortgage?

The main advantage of this type of mortgage lies in its flexibility, particularly for those who might find it challenging to get approved for a mortgage on their own. Common scenarios include:

1. First-Time Buyers: Young adults or recent graduates who have just entered the workforce might not have the income levels required for mortgage approval. However, with the support of a higher-earning family member, like a parent, they can access the property market via a JBSP mortgage.

2. Tax Efficiency for Parents: Parents helping their children purchase a property don’t have to be concerned about additional Stamp Duty Land Tax (SDLT) charges. Since they aren’t named as the property owners, the purchase doesn’t count as an additional property for them.

3. Avoiding Ownership Restrictions: Some individuals may be restricted from owning a property due to professional circumstances, like certain members of the clergy. A JBSP mortgage can provide a solution in such situations.

How Does It Work?

A JBSP mortgage works similarly to a traditional mortgage in terms of the application process, interest rates, and repayment structures. The distinction is in the legalities of ownership. During the application process, both parties’ incomes are assessed, giving greater borrowing power. Once the mortgage is approved, though, only the sole proprietor’s name is on the property deeds.

Implications for Future Mortgage Applications

For joint borrowers, especially those considering taking out a mortgage on another property for themselves, there’s a critical point to note. When they apply for a mortgage, lenders will evaluate their financial obligations, which includes their commitment to the JBSP mortgage.

The already existing JBSP mortgage will be factored into their debt-to-income ratio, potentially reducing the amount they can borrow. In essence, the JBSP mortgage commitment can limit their borrowing capacity for their own property aspirations.

Mitigating the Impact:

For those considering becoming a joint borrower in a JBSP mortgage, it’s crucial to factor in these implications, especially if they have future property plans. Before committing, they might want to:

  • Seek Financial Advice: Consulting with a mortgage advisor can provide clarity on how a JBSP mortgage might impact future borrowing capabilities.
  • Review the Loan Agreement: Understanding the terms, especially around the duration and any possibilities of transferring the mortgage can be beneficial.
  • Changing Circumstances: Life can be unpredictable. What happens if the joint borrower (often a parent) retires or faces financial hardships? It’s crucial to discuss such scenarios and possibly seek financial advice to prepare.

Conclusion

Joint borrower sole proprietor mortgages open doors to the property market for many who might find traditional avenues challenging. By combining incomes, potential buyers can increase their borrowing power while still ensuring that the property remains in the desired owner’s name.

As with any financial commitment, it’s paramount to understand the implications fully and, if necessary, consult with a mortgage advisor or legal professional. As the property landscape evolves, JBSP mortgages stand out as an innovative solution to modern challenges.

For more information on similar topics look at our No Deposit Mortgages blog as well as our essential guide for First Time Buyers blog

Your home is at risk if you fail to keep up payments on your mortgage or any other loans secured against it.

Compton Financial Services Ltd is an Appointed Representative of New Leaf Distribution Ltd. who are authorised and regulated by the Financial Conduct Authority. Number 460421. Head Office 165 – 167 High Street, Rayleigh, Essex SS6 7QA. Co registration Number 5520001.