Family support can work both ways with ‘joint borrower, single owner’ lending, says Tom Gurrie, head of intermediary sales at Vernon Building Society.
The Bank of Mum and Dad is a well-worn phrase across the media – for good reason. Parental support is key to helping many first-time buyers onto the housing ladder.
It’s often in the form of a gifted deposit, loan, or standing guarantor on a mortgage, but there has also been a rise in the number of ‘joint borrower, single owner’ deals.
This type of lending is increasingly used to enable parents to help children onto the ladder by boosting their borrowing power, without incurring the second home stamp duty surcharge and CGT.
The scrapping of stamp duty for first-time buyers in November further boosted the popularity of ‘joint borrower, single owner’ lending, as children can now get larger mortgages and homes without paying stamp duty themselves, with their affordability nicely bumped up by their parents.
So far so good, but there’s only a few lenders that offer this, Vernon included, and many have upper age limits of around 70.
The FTBs and their father
At Vernon we’re a bit more flexible and recently agreed a case for a couple of first-time buyers in London where the father of one borrower supported the mortgage. We were happy to lend until the parent is 85, as he has a property portfolio and pension that provides ongoing income.
The couple could only afford £210K on their own income, but with the husband’s father this rose to the £384K they needed to purchase their first property.
We structured the deal as £210,000 over 35 years plus £174,000 over 22 years, to the father’s 85th birthday. All on repayment, and all on one mainstream product.
But here’s the twist. This increasingly popular option also works in reverse, so a son or daughter can help their parent with their mortgage, without actually buying together.
The ‘Bank of Son and Daughter’ twist
Here’s a recent case that came into us:
A lady in her late fifties had recently been left by her husband, who wanted £50,000 equity out of the house as a settlement.
She couldn’t afford to buy him out as the mortgage didn’t stack up on her income alone. But her adult son was happy to be a joint borrower alongside her, without being added to the deeds.
He has his own job, family and mortgage but a good income and the affordability worked out. Adding him to the mortgage allowed the mother to raise the money to pay off her ex-husband.
The son won’t incur the second home stamp duty surcharge as he doesn’t own any of his mum’s home, and they’ll be no CGT liability.
In this instance the mother needed the money for a divorce settlement, but the same principle could be used for older couples who want to release equity for other reasons. They could get a boost to their affordability from their children.
Obviously, the numbers need to be scrutinised and all parties aware of the possible implications of a change in financial circumstances, ill health or death.
But as with many aspects of mortgage lending, with flexible thinking you discover new approaches and uses for products that can help clients to buy property or, in this case, keep hold of their home.
For more information or to chat through a case, talk to our intermediary team on 0161 429 4327