Buying with your parents? Why a joint borrower sole proprietor mortgage might be the answer
Getting help from your parents to buy a home is pretty standard these days, given the rise in house prices compared to salaries.
In fact, if the Bank of Mum and Dad were a mortgage lender it would be the 11th largest in the UK, according to Legal & General. (1)
And the value of the Bank of Mum and Dad’s lending is expected to rise by 10% to £6.3bn this year, the same research shows.
But while getting a joint mortgage with your parents may seem like a great way to get on the housing ladder, there are considerable downsides compared to buying with a partner or friend who’s also a first-time buyer.
If you’re a first-time buyer you’ll qualify for stamp duty relief on up to £300,000 of the purchase price, providing you’re buying a home worth less than £500,000.
But if you buy jointly with a parent who already owns a home you’re no longer eligible for that relief.
What’s more, you’ll have to pay a 3% stamp duty surcharge because your parent would, in effect, be buying a second home. This could add thousands of pounds to the purchase price.
Joint borrower sole proprietor
The joint borrower sole proprietor option works differently in that your parent contributes to the mortgage without being a co-owner. This can be on a temporary basis until you’re able to cover the payments entirely.
This means your parent could help you to potentially buy a bigger and more desirable home without them actually being an owner.
A number of lenders offer joint borrower sole proprietor mortgages, including Barclays and Metro Bank, as well as smaller lenders like Hinkley and Rugby Building Society.
Risk of a family fallout
If you or your parent defaults on their payment, the other would be liable for the repayments.
In effect, both you and your parent would be reliant on each other. So if there’s a family fallout it could be financially and emotionally damaging.
Planning for the worst
Whether you’re buying with your parent, or taking out a joint borrower sole proprietor mortgage, it’s important to establish what will happen if one of you dies.
It may be that your home has to be sold if you can’t afford the mortgage payments on your own.
There are other ways in which the Bank of Mum and Dad may be able to help you:
They could gift or loan you a deposit.
They could help you get a 'springboard' mortgage by providing some or all of your deposit - and then they get their money back after a few years
You could take out an offset mortgage, where your parent deposits money in a savings account, allowing you to borrow more or reduce your repayments.
Weigh up the benefits
“While buying jointly with a parent may seem attractive, the extra stamp duty fees mean it can be far less beneficial to do so than in the past,” said Haris Sehic, a Mortgage Adviser at Trussle.
“The joint borrower sole proprietor mortgage might be a better option for you, should you wish to get on the property ladder with a helping hand from the Bank of Mum and Dad.”