Getting family help onto the housing ladder: Guarantor and Joint Borrower Sole Proprietor mortgages explained
Last updated: 02/11/2021
Many parents would love to be able to help their children to buy their first home by offering some financial support.
Likewise, some help from the Bank of Mum and Dad can make a massive difference if you’re struggling to get on the housing ladder.
Often this may take the form of a lump sum towards the deposit. After all, raising cash for a deposit can be one of the biggest challenges in the path to home ownership, particularly for first time buyers.
But there are other ways that parents – or in some cases, other family members like grandparents – may be able to help out. Among them are guarantor and joint mortgages.
As a home buyer you may not know much about these types of mortgages. But they’re worth considering if you are struggling to afford a house, and your parents are in a position to help.
Here are the basics.
- Guarantor mortgages
- Joint Borrower Sole Proprietor (JBSP) mortgages
- Mortgage guarantee scheme
Guarantor mortgages provide a way for parents or other family members to use their savings, property or earnings to help their child buy a home by using these assets as security for the mortgage.
This type of mortgage is popular for first-time buyers, particularly those struggling to piece together a deposit, but can also be useful for people struggling to move, perhaps because they have a bad credit score.
While these mortgages can provide a helping hand, it’s also important to know that if a buyer defaults on repayments, then the guarantor has to step in. So it’s important to speak to a financial adviser before committing to a guarantor mortgage.
Another alternative, which also involves parents or grandparents providing a helping hand, is a Joint Borrower Sole Proprietor (JBSP) mortgage.
Borrowers take out a mortgage with family members - usually parents or grandparents - who will take joint responsibility for the mortgage payments, but without sharing ownership of the property.
One of the appealing features of a JBSP is that as only the child is named on the property deeds, the parents (or grandparents) can avoid the stamp duty surcharge. There are other advantages, depending on which lender you choose; for example, in the case of Principality Building Society’s JBSPs, up to four applicants can be accepted on the mortgage, and there isn’t a required minimum income for the application. In addition, your relatives can stay on the mortgage for the full term. Of course, there may come a point when you’re ready for your relatives to come off the mortgage, in which case you can choose to do so.
Family members aren’t the only source of guarantees for first-time buyers and home movers. The government is attempting to help too.
In fact, It has launched a new mortgage guarantee scheme in an attempt to provide an affordable route to home ownership for aspiring home-buyers. It will help first time buyers or current homeowners secure a mortgage with just a 5% deposit to buy a house of up to £600,000.
The government will offer lenders the guarantee they need to provide mortgages that cover the other 95%, subject to affordability checks.
The government launched the scheme after publishing research showing that more than two-thirds of private renters (68%) and those living at home (72%) want to buy, with the majority saying the pandemic has made them more aware of the importance and benefits of home ownership.
So, with so many people aspiring to get on the housing ladder, a little help can go a long way.
Click on the sections below to explore what you need to know at each stage of your home buying journey: