A novel trend in the mortgage industry is the increasing prevalence of joint borrower sole proprietor (JBSP) mortgages, which enable prospective homebuyers to apply for larger loans with the assistance of family and friends. This innovative approach has garnered attention, although caution is advised when considering this option, according to industry experts.
While it is not unprecedented for parents to serve as guarantors for their adult children’s mortgages, these new arrangements take the idea further. Essentially, by including the income of a family member or friend in the application, the buyer can enhance the available funds to cover monthly repayments and potentially afford a property that would otherwise be beyond reach. As a result, the income of these ‘income boosters’, which may include retirement income, is factored in to augment the calculations used to determine the borrowing capacity of the buyer.
While these income boosters do not have ownership rights in the property or appear on the property deeds, they have the option to contribute to the monthly payments and consequently build equity in the property, which they could potentially reclaim in the future. Alternatively, they can remain on standby to provide support in covering repayments if needed by the buyer.
Although this arrangement may appear advantageous for all parties involved, experts caution that individuals should proceed with careful consideration. Justin Moy, Managing Director at EHF Mortgages, stressed that while this innovation is beneficial for the mortgage market, income boosters must be cognizant of the impact on their own financial situation, as it will become a commitment on their mortgage applications and constrain their financial capacity.
Likewise, Stephen Perkins, Managing Director at Yellow Brick Mortgages, warned that while this new scheme can facilitate access to homeownership for more individuals, income boosters need to be mindful of the potential impact on their credit history and personal borrowing capacity in the future. Additionally, Michelle Lawson, Director at Lawson Financial, highlighted the potential risks involved, including challenges in exiting the investment in the event of strained relationships or changes in circumstances.
Despite the potential drawbacks, the innovation has received praise from industry professionals, some of whom advocate for other lenders to adopt similar approaches. Dariusz Karpowicz, Director at Albion Financial Advice, underscored how this approach could enhance accessibility to homeownership, particularly for first-time buyers and those struggling with affordability.
Scott Taylor-Barr, Principal Adviser at Barnsdale Financial Management, emphasised the positive aspects of the JBSP mortgage, noting that it allows family members to support each other in purchasing a property, which can be invaluable for first-time buyers and those seeking to buy after a relationship breakdown.
In conclusion, while the new JBSP mortgages present an exciting opportunity for potential homebuyers to secure larger loans with the assistance of family and friends, it is imperative for all parties involved to comprehend the potential risks and implications before making such a commitment. As with any significant financial decision, it is essential to approach it with caution and seek professional guidance to make an informed choice.