You may be thinking about buying a property with another person or perhaps you’ve got a family member who’s willing to help you out with your mortgage. Different types of mortgages in joint names can be used – a joint mortgage or a joint borrower sole proprietor (JBSP) mortgage – but both types are very different.
So, which one should you use for which scenario? How exactly do joint mortgages differ from JBSP mortgages?
What is a joint mortgage?
A joint mortgage enables you to buy a property with at least one other person, such as buying a new home together as a couple. Lenders usually allow up to four joint applicants, meaning this is a good option if you want to buy somewhere with your parents, siblings or friends.
Ownership of the property
Each person is named on the property deeds. You may choose to own equal shares of the property or you may prefer to have different shares. For example, one person may have paid a bigger chunk of the deposit so it’s agreed that they can own more of the property in return. Your agreed shares of the property are defined in the deeds. Depending on your choice, you can either be joint tenants or tenants in common.
- Joint tenants: As joint tenants, you own equal shares of the property, regardless of who has paid what. As you own equal shares, you benefit from equal shares of the profit if you sell the property in the future. If one of you passes away, the other joint tenants inherit that person’s share.
- Tenants in common: You may feel that being tenants in common is a fairer arrangement, allowing for each tenant to own a different share. Once you have decided what percentage of the property each person is to own, this is confirmed in a deed of trust that is drawn up by your solicitor.
If you sell the property in the future, each person gets their relevant share of the proceeds. If one of you passes away, that person’s share is passed on to the beneficiary named in their will.
The mortgage arrangement
Each person in this arrangement is also named on the mortgage and everyone is equally responsible for maintaining the monthly mortgage payments. This is regardless of anyone’s share in the property.
If one person misses any mortgage payments, not only do the payments have to be made by the other borrowers but it also negatively affects each person’s credit rating. This is because taking out a joint mortgage shows that you have a financial connection with each other in your credit report.
What is a joint borrower sole proprietor mortgage?
A joint borrower sole proprietor mortgage (JBSP) is a good way for you to buy a property with financial help from another person, such as a parent. Just like a joint mortgage, lenders usually allow up to four joint applicants. Unlike a joint mortgage, however, the property ownership is completely different.
Ownership of the property
With a JBSP mortgage, regardless of who applies for the mortgage with you, you are the only person named on the property deeds. As the sole proprietor, this means that the other borrower has no legal claim over your property.
This is ideal if you have a parent, for example, who wishes to help you out financially but doesn’t wish to own the property. They are likely to already be a homeowner. If they then purchased another home with you, they’d become liable for the additional property stamp duty surcharge, which would be very expensive. This arrangement means that the scenario is avoided.
The mortgage arrangement
Each applicant’s income is taken into account for a JBSP mortgage, helping to boost your affordability when buying a home. This can help you to either get on the property ladder if you’re a first-time buyer or to move up it if you’re already a homeowner and can’t afford to move to a new home on your own.
Each borrower is named on the mortgage for a JBSP loan and each person is equally liable for making the monthly mortgage payments. When you’re in a position to afford the mortgage on your own, the other borrower(s) can be released from their obligation. For example, you may benefit from a salary increase that enables you to cover the mortgage payments without any help. You can then remortgage to a new deal on your own.
Are joint or JBSP mortgages better?
When you’re ready to buy a home with another person so that you share ownership of it together, then you need a joint mortgage. This is ideal if you’re buying as a couple or with friends.
If you want to buy a home that you’re the sole owner of but need some financial help doing it, then a joint borrower sole proprietor mortgage is a good solution. This arrangement can be preferred to other options by the person helping you out.
For example, with a guarantor mortgage, their home or savings are usually used as security for the mortgage, whereas the security for a JBSP mortgage is the home you’re buying. With a joint mortgage, they’d be liable for a second property stamp duty surcharge. This isn’t the case with a JBSP mortgage. With a family springboard mortgage, their savings are tied up for a fixed term and at risk if you default on the mortgage.
Make the best joint decision for your mortgage needs
Our mortgage brokers can discuss your situation and provide you with detailed information on joint and JBSP mortgages as well as the alternatives available. That way, with impartial advice and comparisons, you and the other applicant(s) can make the most suitable choice for your needs.