Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
If you’re an aspiring first-time buyer you may be thinking your dreams are out of reach. First-time buyer property prices in the UK increased by more than two thirds between 2010 and 2020 and almost doubled in Greater London according to mortgage lender Halifax, making them unaffordable for many.
In June 2020 the average first-time buyer deposit stood at 20% and in some parts of the UK, including London and Oxford, house prices were more than 11 times average earnings, making it difficult for many first timers to get (and afford) the size of mortgage they need.
Research from mortgage broker Trussle carried out in October 2020 also found that 65% of first-time buyers feel it’s impossible to get onto the property ladder.
In the face of these challenges, it’s not surprising that so many first-time buyers turn to their parents for help. Research by Legal & General in October 2020 found that more than half of first timers under 35 bought a property with financial support from their parents.
Although buying a property jointly with your mum and dad is one option, there are disadvantages to this.
One is that you won’t benefit from the first-time buyer stamp duty exemption. This means that from 1 April 2021 you don’t pay stamp duty on the first £300,000 (following the stamp duty holiday until 31 March 2021 introduced due to the coronavirus pandemic, making properties up to £500,000 exempt) but everyone buying the property must be a first-time buyer.
Since 2016 an extra 3% of the whole property price has also been charged on additional properties, so this would apply if your parents own their home or another property for example.
To avoid these issues, one option is to take out a joint borrower sole proprietor mortgage, also known as a JBSP mortgage.
In a nutshell, this means you take out the mortgage with your parents or someone else (usually another family member) willing to have joint responsibility for the mortgage payments, but only you actually own the property.
All parties will have to meet the lending criteria and show that they can afford the repayments to be granted a mortgage and if one of you is unable to make the payments at any point the others are liable to pay the whole amount. Your family members are not co-owners and are not named on the title deeds so they don’t have any legal claim over the property or any increase in value.
Getting help in this way means you might be able to afford a property when you otherwise wouldn’t or to afford a bigger or better property, as your family members’ income is taken into account along with your own.
They are essentially designed to help you with the mortgage payments temporarily until you can afford them by yourself. When you’ve come to the end of the initial deal period when early repayment charges no longer apply you may be in a position to switch to a mortgage in your name only.
JBSP mortgages can also help you get a loan if you have no credit history or a low credit score. Once you’ve taken the mortgage out you can then build your credit rating by making the mortgage payments each month to show that you are a reliable borrower.
As JBSP mortgages are a fairly niche product they are only offered by a limited number of lenders, mostly smaller building societies. These include:
Bath Building Society
Furness Building Society
Hinckley & Rugby Building Society
Market Harborough Building Society
Marsden Building Society
Newcastle Building Society
Principality Building Society
Skipton Building Society
Tipton & Coseley Building Society
As when taking out any type of mortgage, it’s a good idea to speak to a mortgage broker, who can look at the whole market to find the best deal for you. They can also offer products not available directly from the lender and you’ll have access to compensation if you get poor advice.
Although joint borrower sole proprietor mortgages are usually aimed at first-time buyers, you don’t always have to be a first-time buyer to take one out. They may be available for remortgaging as well as new purchases and you can also change from a standard mortgage to a JBSP one.
Up to 4 people may be able to take out the mortgage together and, while some lenders don’t specify what your relationship to the other people should be, most require them to be family members. Only you – the sole proprietor – can live in the property.
You can usually choose from any mortgage deal the lender is offering at the time and may be able to borrow up to 95% of the property’s value depending on the products available and subject to the lender’s usual affordability criteria.
In some cases you may be asked to prove that you will be able to afford the mortgage on your own after a certain period, such as 5 years – if you’re in a profession that has clear career progression and salary increases for example. If you’re not, however, this could be tricky.
The age of the oldest borrower will be used to decide the maximum mortgage term allowed. Many lenders require borrowers to have paid off their mortgage by the age of 75, although others allow up to 85 or have no age limit at all, so if you’re taking out a mortgage with your parents this may restrict the length of the term. The shorter the term the higher the mortgage repayments will be.
All parties involved in the mortgage application will have to take independent legal advice to make sure they are fully aware of the implications of what they are entering into.
One of the main issues to consider is what would happen if your relationship with the family members on your mortgage broke down. It can be a complicated and costly process to have their names removed from the mortgage and, as it’s unlikely that you’ll be able to afford the mortgage on your own, selling the property might be your only option.
If you’re currently paying the mortgage repayments yourself, you should also think about how you would feel if you couldn’t afford them anymore – you lost your job for example – and your family members had to cover them entirely. You might not feel comfortable with this continuing long term so decide you have to sell the property.
And as with taking out any mortgage, you need to make sure you can afford all the other costs of owning a home too, such as maintenance costs, utility bills and insurance, and consider the implications of any changes to your circumstances.
Other than losing your job, you could become unable to work because of illness or injury, the other people on the mortgage might need to be released from the commitment – because they want to buy a property themselves for example – or you might find yourself in a relationship with someone who wants to contribute to the mortgage and become a co-owner of the property.
If you decide that a joint borrower sole proprietor mortgage isn’t for you, other ways to get help from family members to buy a home include family offset mortgages, where your relatives’ savings are offset against your mortgage debt so you pay interest on less, or a mortgage that allows family members to use their savings or equity in their home as security for your mortgage.
If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs.