You won’t see it advertising products or be able to walk into a branch on the High Street, but the Bank of Mum and Dad is alive and well and business is booming. According to a Legal and General report, the phenomenon that some term ‘Bomad’ will be involved in one in four property transactions this year, and it’s become a vital enabler for younger generations looking to get onto the property ladder.
According to Santander, buying a house is now cheaper in terms of monthly repayments than renting a similar property in every area of the UK (£723 vs £912 for the average first time buyer).[i] However, as property prices have spiralled upwards, sourcing the deposit needed to get a first time mortgage has been an issue for many. Therefore, thousands of parents have used their savings and pension pots or released equity from their homes to help the next generation get onto the property ladder.[ii]
In the mortgage industry, the term we use to describe this type of loan is a Joint Borrower Sole Proprietor (JB-SP) mortgage, and this was the most searched-for term relating to residential mortgages in August 2018.[iii] It means that parents or close family members are named on the mortgage, but not on the deeds of the home. JB-SP loans used to be a private bank specialism, but in recent years mainstream banks and lenders have adapted their policies and products to provide this offering.
Who are Joint Borrower Sole Proprietor mortgages for?
Committing to funding a house purchase with an individual is a big undertaking, so usually these mortgages are for close family members. Typically, parents or grandparents select this type of mortgage so that they can use their income to help younger generations get a foot on the property ladder, without claiming ownership of the property.
The key facts
The maximum age at the end of the mortgage term is generally 80 years old, which is higher than many traditional mortgages and takes into account the fact that borrowers often span the generations.
Typically, up to four applicants can be on the mortgage, with up to four incomes considered.
Why take out a Joint Borrower Sole Proprietor mortgage?
JB-SP loans can be a great option for a variety of reasons, the first being Stamp Duty. First time buyers are exempt from Stamp Duty Land Tax (SDLT) up to £300,000, meaning that – on a property worth £400,000 – a first time buyer will only be liable for £5,000 (refer to table 1 below). For anyone who has previously owned a property, Stamp Duty will be £10,000 on a £400,000 home (refer to table 2 below).
However, if parents already own a home, and they’re also named on the deeds of their children’s, then this home will be termed a second property and would result in a significant increase in Stamp Duty. On a £400,000 home it would be £22,000 (refer to table 3 below). Therefore, it’s usually within everyone’s interest to take out a Joint Borrower Sole Proprietor mortgage.
Buy to let mortgages
Joint Buyer Sole Proprietor mortgages are not just for residential properties. For couples who own buy to let properties, it’s not unusual for them to be purchased in the sole name of the lowest earner for tax purposes. New rules surrounding buy to let mortgages[iv] mean that portfolio landlords (meaning those who own more than four properties) must pass a set of strict criteria, making remortgaging or raising more funds more difficult. Using a Joint Borrower Sole Proprietor arrangement may allow the ownership of the property to remain unchanged, and offer potential to remortgage to raise capital or secure a better rate.
Protecting assets
JB-SP mortgages can be useful to protect your home. Often, clients don’t want to be named on the deeds of a property for tax reasons. Similarly, owners of Limited Companies may not want their name to appear on the deeds of a property as it could be exposed as an asset that can be taken into account when their tax bill is calculated.
What are the other options?
If you still want to leverage the Bank of Mum and Dad, Joint Buyer Sole Proprietor mortgages are far from the only way of doing it. Family mortgages are another way that you can bring assets from the family into the mortgage calculation, which can put borrowing within reach. Simply put, this means that your close family can use their home or pension pot to guarantee a mortgage, without necessarily having to dig into savings or annuities. This guarantee may mean that first time buyers can stretch their budgets without having to make huge repayments, as interest rates will be offset with the security of their family’s assets meaning they are generally lower.
There are a number of options to be considered, and a range of products on the market. In order to ensure you get the right product, tailored to your individual circumstances, you should seek out professional advice.
Our expert team boasts decades of experience in all types of mortgages and specialist situations, and we’re always open to sharing our knowledge. Whether you’re unsure of your options, or just want to be certain you’re getting the best deal, please don’t hesitate to get in touch to find out how we can help you find the right solution for future generations.
Table 1.
First Time Buyer SDLT Calculation
| Purchase price bands (£) | Percentage rate (%) | SDLT due (£) |
|---|---|---|
| Up to 300,000 | 0 | 0 |
| Above 300,000+ | 5 | 5,000 |
| Total SDLT due | 5,000 |
Table 2.
SDLT For someone who has owned a property previously
| Purchase price bands (£) | Percentage rate (%) | SDLT due (£) |
|---|---|---|
| Up to 125,000 | 0 | 0 |
| Above 125,000 and up to 250,000 | 2 | 2,500 |
| Above 250,000 and up to 925,000 | 5 | 7,500 |
| Above 925,000 and up to 1,500,000 | 10 | 0 |
| Above 1,500,000+ | 12 | 0 |
| Total SDLT due | 10,000 | |
Table 3.
SDLT for purchase of second home
| Purchase price bands (£) | Percentage rate (%) | SDLT due (£) |
|---|---|---|
| Up to 125,000 | 3 | 3,750 |
| Above 125,000 and up to 250,000 | 5 | 6,250 |
| Above 250,000 and up to 925,000 | 8 | 12,000 |
| Above 925,000 and up to 1,500,000 | 13 | 0 |
| Above 1,500,000+ | 15 | 0 |
| Total SDLT due | 22,000 |
[i] https://www.telegraph.co.uk/financial-services/money-comparison/mortgages/buying-cheaper-than-renting/
[ii] According to the L&G ‘Bank of Mum and Dad’ research 2018 50,000 UK property transactions will be enabled by parents digging into their pensions for the deposit. A further 23,000 will be supported by a parent’s annuity income, and another 44,000 will be supported by parents releasing equity from their own homes. https://www.legalandgeneral.com/retirement/retirement-news/2018/the-generosity-of-the-bank-of-mum-and-dad.html
[iii] https://www.mortgagesolutions.co.uk/news/2018/09/06/brokers-bank-mum-dad-searched-resi-mortgage-term-august/?utm_source=customsell&utm_medium=email&utm_campaign=ms-house-advert-0609-1536229979
[iv] https://www.largemortgageloans.com/how-to-get-a-large-mortgage-loan-as-a-portfolio-landlord/
Notes:
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
The bases and reIief’s from taxation are subject to individual circumstances, you should seek taxation advice from a suitably qualified tax expert with regards to your own circumstances.
