The 3% stamp duty surcharge on the purchase of second homes which was introduced in April 2016 has posed a problem for parents wanting to help their children onto the housing ladder by buying in joint names. However, some enterprising lenders have devised plans which avoid the problem.
These plans are called joint borrower sole proprietor (‘JBSP’) mortgages and allow parents to share in the financing of the purchase without becoming part owners of the property and thereby incurring the second home charge.
This would enable a buyer whose income did not justify the level of mortgage required, to involve a parent with a higher income to meet the lender’s income multiple requirement.
Another consideration is capital gains tax, which would be payable on the increase in value of a second home. This is avoided by keeping the name of the parent off the title deeds. The separation of ownership from financing also enables the first-time buyer to qualify for the £300,000 stamp duty exemption, which would not be available if the purchase were in joint names.
JBSP is available from a limited number of lenders and the criteria are strict. There must be a direct family connection between the buyer and the joint mortgagor, and the buyer’s income prospects must be sufficient to enable them ultimately to afford the mortgage on their own.
An alternative scheme offered by one lender allows a borrower a 100% loan subject to a family member providing a 10% deposit.