Could THIS type of mortgage mean you DON’T pay extra Stamp Duty?

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More people are jointly buying houses to meet minimum borrowing requirements

More and more First Time Buyers are now purchasing jointly, either with a partner, sibling or friend in order to achieve the level of borrowing required by combining two salaries and two contributions towards the deposit and other costs associated with buying. 

However, for those who are lucky enough to have the ‘Bank of Mum and Dad’ assisting them, since the introduction of the Stamp Duty surcharge in 2016, things have become a little more difficult.  

That’s because if a First Time Buyer is jointly purchasing with a parent who already owns a property and they are named on the deeds of the new purchase, this attracts the additional three percent Stamp Duty Surcharge, thus negating any First Time Buyer exemption to which they might otherwise have been entitled. 

But there is a little known, very niche ‘breed’ of home loans called Joint Borrower, Sole Proprietor mortgages which provide a solution to this very problem.

It’s not the snappiest of monikers, but don’t let the name put you off.  They can save thousands of pounds in Stamp Duty in the appropriate circumstances. Although not a mainstream mortgage product, they certainly aren’t a ‘new’ concept and have been available, albeit in slightly varying forms, for many years.

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Clydesdale bank has offered these great mortgages for a number of years

For example, Clydesdale Bank have offered them for over a decade and Metrobank have included them as part of their product portfolio since 2013.  

So, how do Joint Borrower, Sole Proprietor mortgages work? 

Well, simply put, the income of the first applicant, for example a First Time Buyer, and the income of the second applicant, perhaps their parent, are both assessed in the mortgage application.  This means, taking both incomes into account, that the overall lending amount is generally more than the first applicant can borrow just using their own salary.  

The way that Joint Borrower Sole Proprietor mortgages differ from other mortgages, however, is whilst the second applicant’s income is assessed as part of the affordability process and used to calculate how much the lender will advance, crucially their name isn’t added to the Deeds of the property. 

This means that, as far as HMRC are concerned, no second property has been purchased and therefore no three percent surcharge is payable on the Stamp Duty and Land Tax, meaning that the new measures for First Time Buyers around exemption and reduced rates of Stamp Duty still apply so these purchasers can still benefit from the savings available.  

But it’s not just First Time Buyers who can benefit from Joint Borrower Sole Proprietor mortgages, as Brian Murphy, Head of Lending for Mortgage Advice Bureau explains:

“In some cases, where a couple are buying jointly and one party already owns a property which is perhaps either currently let out or on the market for sale, in normal circumstances the additional Stamp Duty surcharge would apply, due to the fact that their joint purchase would count as a second property if both parties are named on the deeds.”

Brian continues, “However, if a couple in these circumstances are able to successfully apply for a Joint Borrower Sole Proprietor mortgage, it would mean that the partner who already owned a property could have their income assessed in order to raise the level of borrowing required, but by not naming them on the deeds of the jointly purchased home, the second property surcharge wouldn’t be payable. 

“It’s an ideal solution for some people which enables them to still purchase in normal circumstances, rather than having to find thousands of pounds in additional stamp duty, yet is perfectly legal and legitimately accepted as such by HMRC.” 

Sue Heron, Director at Furness Building Society who are one of the handful of lenders who currently offer a Joint Borrower Sole Proprietor product adds, “Although these mortgages are a specialised part of the market, due to both rising property prices and changes in the way stamp duty and land tax is calculated over the last few years, the requirement for these types of mortgages is increasing.

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Both halves of a couple borrowing are equally liable for monthly payments

“Whilst this particular method of borrowing is only utilised by a small proportion of customers, once more people are aware of this type of mortgage and how it can be used, the demand for them may increase.”

Of course, if you’re considering entering into a Joint Borrower Sole Proprietor, there are a couple of things to bear in mind, particularly if you’re the second applicant whose name won’t go on the Deeds of the property.  

Firstly, both borrowers are still named on the mortgage, therefore are both jointly and severally liable for meeting the monthly payments. 

So, if the first applicant misses a mortgage payment, it’s down to the second applicant to pay it in full. 

It’s also important to remember that both people who apply will have to meet the lender’s criteria, which means that both borrowers will have their circumstances and finances reviewed, including their credit score, debts, commitments and regular spending. 

Secondly, in legal terms the second borrower won’t have an interest in the property officially, as they aren’t named on the property title, so it would be best to take advice in terms of perhaps structuring a Deed of Trust, particularly if you’re buying with a partner. 

But, providing you’re well advised and ensure both borrowers are protected legally, for many, this particular type of mortgage might just be the answer to an otherwise complicated – and costly – conundrum. 

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