Joint Borrower Sole Proprietor (JBSP)
Joint Borrower Sole Proprietor (JBSP) mortgages are a relatively new and specialized type of mortgage. They enable up to four individuals to contribute to the mortgage payments, while only one person holds the legal ownership of the property. This arrangement is becoming increasingly popular, especially among first-time buyers and families who want to help younger members purchase their first home. However, it's important to be aware that the legal and tax implications can vary, especially regarding stamp duty, capital gains tax, and inheritance tax.
​What is a joint borrower sole proprietor (JBSP) mortgage?
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A Joint Borrower Sole Proprietor (JBSP) mortgage allows multiple individuals to be named as borrowers, while only one person is designated as the sole proprietor of the property. This arrangement means that all borrowers share the responsibility for repaying the mortgage, but legally, only one person is recognized as the property owner.
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If one person is unable to make the repayments on a JBSP mortgage, the others are responsible for covering the entire amount. Therefore, it's important to enter this type of mortgage with someone you trust and whose financial situation you are familiar with. The mortgage holders are not listed on the title deeds and do not have any legal claim to the property or its appreciation in value. Once the initial deal period ends and early repayment charges no longer apply, the sole owner can transfer the mortgage to their name only.
​How does a JBSP mortgage work?
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A joint-borrower-sole-proprietor (JBSP) mortgage shares similarities with a standard mortgage. Borrowers must meet the lender's criteria, which include age limits, income, and creditworthiness. Some lenders require that applicants be no older than 70 at the end of the term, while others set the age limit at 80.
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Additionally, a JBSP mortgage can offer Stamp Duty benefits. Typically, purchasing a property with someone who already owns a home would incur a second home Stamp Duty rate of 3%. However, with a JBSP mortgage, the other parties avoid this liability.
What’s the difference between a JBSP mortgage and a joint mortgage?
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The key difference with a JBSP mortgage is that only one borrower (the proprietor) is named on the property's ownership deeds, and lenders often require this person to live at the property. As a property owner, your name is listed on the title deeds.
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If you are just a borrower, you have no claim to the property but are still responsible for the loan debt. On the other hand, a joint mortgage is for those who want to buy and own the property together.
What are the advantages of a JBSP mortgage?
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The advantages of joint borrower sole proprietor mortgages can include:
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Increased Borrowing Power: Combining incomes from multiple borrowers can help the sole proprietor qualify for a larger mortgage than they could on their own.
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Sole Ownership: The sole proprietor retains full ownership of the property, allowing them to benefit from any appreciation in value and making future sales or inheritance planning simpler.
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First Time Buyer Benefits: The sole proprietor can take advantage of first-time buyer incentives, such as lower stamp duty rates, even if the other borrowers already own property.
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Parental Support: Parents or relatives can help younger buyers get onto the property ladder without becoming co-owners, making it easier for them to exit the arrangement once the sole proprietor can afford the mortgage independently.
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Flexible Exit Strategy: Once the sole proprietor’s financial situation improves, the additional borrowers can be removed from the mortgage more easily than if they were co-owners.
What are the disadvantages of a JBSP mortgage?
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The disadvantages of joint borrower sole proprietor mortgages can include:​
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Shared Responsibility: All borrowers are collectively responsible for the mortgage repayments. If the sole proprietor misses payments, it will negatively impact the credit scores of all borrowers.
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Complexity in Removal: Removing additional borrowers from the mortgage later can be complicated and may require a re-mortgage, which can incur extra costs and necessitate meeting new affordability criteria.
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Limited Lender Availability: Not all lenders offer joint borrower sole proprietor mortgages, which can restrict the available options and potentially result in higher interest rates or less favourable terms.
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Financial Risk for Additional Borrowers: The additional borrowers assume significant financial risk without gaining any ownership rights, which can be a substantial commitment if their own financial situation changes.
Alternatives to a JBSP mortgage?
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JBSP mortgages are commonly used to help close family members purchase a home, but there are other alternatives:
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Guarantor mortgage: A guarantor, often a parent, uses their savings or home as collateral instead of a deposit, allowing the mortgage applicant to proceed with minimal or no savings.
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Tenants-in-common mortgage: Borrowers each buy a share of a property, which they can sell independently of the other owners.
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Shared ownership: Borrowers use a mortgage to purchase a share of a home and pay rent on the remaining portion. This scheme is typically managed by developers.
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Rent to Buy: Tenants pay reduced rent on a new-build home while saving for a deposit to eventually buy the property or a share of it. This is a government scheme.
How can Knightwood Mortgages help?
At Knightwood Mortgages, we're dedicated to making your joint borrower sole proprietor application process as easy as possible. Contact us to find a suitable mortgage deal by emailing services@knightwoodmortgages.co.uk or calling 03301 336045.
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