First-time buyers (FTBs) need all the help they can get in what remains a challenging mortgage market.
One option for would-be buyers is a Joint Borrower Sole Proprietor (JBSP) mortgage, which can significantly boost the amount people can borrow, enabling them to get their feet on that all-important first rung of the housing ladder.
The name might be a bit of a mouthful, but the principle behind a JBSP mortgage is relatively straightforward.
Rather than solely using the salary of the buyer to calculate affordability, individuals — or a couple, if buying together — can team up with parents, grandparents, family or friends to effectively pool incomes.
This can enable first-time buyers to borrow more, using standard income multipliers, and can also help with affordability when it comes to the monthly repayments.
Although, as the name suggests, it is just the FTBs whose names appear on the property deeds.
This might seem like a slightly lopsided agreement, with the buyer getting most of the benefit. The joint applicants don’t have legal ownership of the property but will be liable for mortgage payments should the buyer default.
However, parents and grandparents often want to help their children buy their first home, and these arrangements can suit those who don’t have the surplus funds to simply gift a large capital sum for the deposit.
It is not hard to see why there is a need for JBSP mortgages.
Over the past decade or so, house prices have risen far faster than average wages. Most lenders use a standard income multiplier of around four times salary, which has meant that even FTBs on above-average salaries have struggled to afford a ‘starter’ home or flat in many parts of the country.
JBSP mortgages are also used by other borrowers, including those buying after a relationship breakdown, or those moving up the housing ladder, perhaps after starting a family.
At Hinckley & Rugby for Intermediaries, we have sought to make our JBSP range as flexible as possible to ensure it appeals to a wide group of borrowers.
We’ve also tried to address potential issues borrowers can run into with these products.
Hinckley & Rugby’s Flex Together range allows up to four borrowers on a single mortgage application.
Unlike some products, this isn’t restricted to immediate family members, such as parents, but can also include friends.
Flex Together allows buyers to borrow up to 95% of the property’s value if the joint applicants are close family members, such as parents, siblings or a spouse.
For other joint applicants, the maximum LTV is 80%. Five-year fixed rate and discounted products are available.
Hinckley & Rugby applies an income multiple of 4.49 times for the two highest earners and then x1 for all additional applicants.
As with other ‘Flex ’products, we don’t stick to a rigid definition of income but take into account bonuses, commission payments, pensions and investment income, where appropriate, to help boost borrowing.
There is one other significant difference with Hinckley & Rugby’s JBSP range. Flex Together offers a ‘tailored term ’option, enabling different applicants to share the mortgage over different time periods.
This can be helpful when there is a significant age gap between applicants, which is common with JBSP applications and can create potential problems on standard products.
For example, lenders may not want to extend the mortgage past the oldest applicant’s 65th or 75th birthday.
This could limit the overall term of the mortgage, pushing up repayments for first-time buyers — and potentially negating the benefits of opting for a JBSP product in the first place.
But Hinckley & Rugby’s made-to-measure tailored term tool allows multiple applicants to share the cost of the mortgage over separate time frames.
For example, we can assess what a 25-year-old first-time buyer would be able to afford over a 40-year period. If this is still short of what they need to purchase their first home, we can look at how much a parent would need to contribute over a shorter timeframe to get them to this target amount.
This tailored term tool can be applied to any of our mortgage products but really comes into its own with our Flex Together range. Many families want to help the next generation get onto the housing ladder.
As a building society, helping people onto the housing ladder is part of our DNA too, and our Flex Together mortgage is designed to help families and first-time buyers meet this goal.
Laura Sneddon is head of mortgage sales and distribution at Hinckley & Rugby for Intermediaries
