What is a Joint Borrower Sole Proprietor Mortgage?

Helping young people to get onto the first rung of the property ladder 

 A Joint Borrower Sole Proprietor Mortgage (otherwise referred to as a JBSP mortgage) is a type of home loan that allows two people to borrow money together while only one of them is named on the mortgage. This can be beneficial for people who want to buy a property but don’t have enough money for a deposit or who have bad credit and need someone with good credit to co-sign the loan. 

 A JBSP is primarily used as a way of helping young people to get onto the first rung of the property ladder, and can assist in securing a mortgage and potentially increase the borrowing scope too. JBSP mortgages allow individuals to accept the financial support of their family, while retaining a sense of independence through sole ownership of the property. 

 Financial responsibilities 

 The main difference between this type of mortgage and other types of loans is that both borrowers are legally responsible for repaying the debt. This means that if one borrower fails to make their payments, the other borrower is still liable for the full amount. 

 A joint mortgage is one in which you buy a home jointly with someone else – be it a relative, friend or partner – and you share both the ownership and the financial responsibilities. Therefore, both parties are responsible for repaying the mortgage, and both have a legal claim to the property ownership.  

 Guarantor mortgage  

 By contrast, with a JBSP mortgage, the other applicant, usually a parent, takes on joint responsibility for the debt and repayments, yet has no legal claim to ownership of the property. 

 The only way in which a guarantor mortgage is similar to a JBSP mortgage is that the parents have no legal claim to property ownership in either. With a guarantor mortgage, parents only assume responsibility for the debt if their son or daughter can no longer meet the repayments. Conversely, with a JBSP mortgage, they agree to contribute towards the mortgage repayments from the beginning. 

 Combined income 

 Typically, a JBSP mortgage lender will consider up to four applicants for a single JBSP mortgage, although this figure can differ between providers. Usually, only two incomes will be formally considered, with any others only being taken into account as additional financial guarantees. 

 The amount that can be borrowed will vary between applications as well as differing lender criteria. Typically, a JBSP mortgage will allow up to four applicants and most lenders will cap your potential borrowings to 4.5 times the combined income, although some lenders may offer more. 

 Financial problems  

 However, there are some risks associated with a JBSP mortgage as well. If the person who is named on the mortgage defaults on the loan, the other person is still responsible for repaying the debt. This can lead to financial problems for both parties involved. 

 A JBSP mortgage is one way of helping family members buy a home, but a guarantor mortgage or a housing scheme could be more appropriate, so it’s important to understand all the options. 

Want to discuss your mortgage options? 

 If you are considering taking out a Joint Borrower Sole Proprietor Mortgage, it is important to weigh the pros and cons carefully before making a decision. This type of mortgage can be a great way to buy a home, but you need to know the risks involved. To discuss your requirements, contact The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Mortgage market uncertainty

What’s happening with mortgage rates?  

 A series of unfunded tax cuts announced by the new Chancellor of the Exchequer, Kwasi Kwarteng, forced the Bank of England to issue an emergency statement pledging to lift rates ‘as much as needed’ to control inflation, following major volatility caused to the pound and UK gilts. 

 The Bank of England had already raised the base rate seven times from 0.1% to 2.25% since December, which has pushed up the cost of borrowing, because the swap rates banks use to price fixed-rate deals have also risen sharply. These swap rates jumped rapidly in the aftermath of the Chancellor’s Mini-Budget on 23 September, which sent government borrowing costs soaring. 

Since that statement we have had a change of heart, changes in policy, a new Chancellor and a new Prime Minister. Has this helped?

 Market uncertainty 

 As a result of the uncertainty over future interest rates, many lenders within days of the Mini-Budget pulled nearly a thousand mortgage deals from the market. First-time buyers and those looking to remortgage are likely to be most affected.  

 Subsequently, there have been reports of some property sales falling through as lenders backed out of previously agreed mortgage deals due to market uncertainty. This is not something that I have witnessed, in fact if you gave a mortgage offer with a high street lender they will, in my experience, alway stand by that offer.

 Current mortgage 

 The Halifax, part of Lloyds Banking Group, put up the interest rates on a range of deals for new borrowers to well over 5%. ‘The new rates reflect the continued increase in mortgage market pricing over recent weeks,’ a spokesperson for Halifax said. 

 According to Moneyfacts, the interest rate on a typical two-year fixed rate mortgage has now breached 6% for the first time in 14 years. An average of at least 100,000 people a month are coming to the end of their current mortgage and face a significant rise in their monthly repayments. 

 Higher increase  

 The interest rate on a new, average two-year fixed deal on the morning of the Mini-Budget fiscal event was 4.74%, compared with 6.07% on 5 October. The result of this, for somebody borrowing £200,000 on a 30-year mortgage, is in the region of an additional £170 a month on repayments. A five-year fixed deal has typically risen from 4.75% to 5.97% over the same period. 

 Following the Mini-Budget, mortgage rates subsequently jumped with the expectation of a faster and higher increase in the bank rate in the coming months. Other major lenders such as NatWest, Nationwide and Virgin Money also increased their rates. 

 Monthly repayment  

 Moneyfacts highlighted a scenario whereby a homeowner borrowing £200,000 on a 30-year mortgage may have been looking at a rate of 3.5% and a monthly repayment of £898 during mid-September. However on 5 October, this is more likely to have risen to a 5.5% rate and a monthly repayment of £1,135. 

 On the morning of the Mini-Budget there were 3,961 deals available, compared with 2,262 at the start of October, a 43% fall, according to Moneyfacts. 

 Mortgage products  

 We do not know what will happen to the market next.   

In fact we have seen some lenders shaving a little of the rates available, however with the Bank of England raising the base rate to 3% and with further rises in the pipeline the outlook is for higher interest rates for the foreseeable future.  

Want to discuss your mortgage options? 

If you are concerned about the rise in mortgage rates it is essential you seek professional advice to assess the options and deals available to you right now. To discuss your situation, speak to The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Bank of England Raises Rate Again

Today the Bank of England have put up interest rates for the eight consecutive time and by the largest amount since 1992. I remember Black Wednesday, the last time rates went up by this amount in 1992, I was in sixth form and it was discussed in my A level Economics class. Back then the government were in charge of setting the rate, now the Bank of England has autonomy to set rates independently as it sees fit.

What Does It Mean for my Mortgage?

If you have a tracker mortgage then your lender will be in touch to notify you of the increase and inform you of what your new payment will be from next month, as a rule lenders tend to apply any rate changes the month after the change.

The jump is 0.75% from 2.25% to 3%. So if your tracker is Base + 1% you’ll now be paying 4%.

If you are on a fixed rate then your payment is not going to change until you reach the end of your fixed deal. You will need to keep an eye on when your deal expires and speak to your broker or your lender around six months before that deal expires.

What does the Future Hold?

Clearly a difficult question. The Bank of England Governor, Andrew Bailey has today said:

“From where we stand now, we think inflation will begin to fall back from the middle of next year, probably quite sharply.”

“To make sure that happens, bank rate might have to go up further over the coming months.”

“We can’t make promises about future interest rates. Based on where we stand today, we think bank rate will have to go up by less than currently priced in financial markets. And that’s important because, for instance, it means that the rates on new fixed-term mortgages should not need to rise as they have done.”

The BoE governor adds that today’s decision “should not lead to higher mortgage rates”

I’d say that last sentence is reassuring, mortgage rates started going a bit crazy about six weeks ago and in the last few days we have seen some lenders reducing rates, albeit very small reductions. The markets seem to be pricing in a high of around 5.5 to 5.75% which is a little lower than the previously thought 6%. It is still the case that a five year (in some cases 10 year) fixed rate is priced lower than two year fixed rates, which is strange as usually you would expect the longer the fixed rate the higher the rate will be. I am reassured by the small reduction over the last few days and think the market will regain some competitiveness over the coming months.

However I think we need to be prepared for tough times ahead, house prices potentially falling by around 10% and the cost of living continuing to increase so it is important to keep an eye on your mortgage rate and when your current deal expires. There is no doubt if you are approaching the end of your fixed deal you need to be prepared for an increase in your mortgage payment.

As ever I am delighted to discuss your options with no obligation.

Taxing Times

Following on from last week’s article about buy to let this week some of the tax issues around buy to let are covered.

 Changes landlords need to know about

If you’re considering becoming a landlord and renting a property, or if you’re already in the process of doing so, it’s important to be aware of your tax obligations. Rules on paying tax when renting out your property are ever-changing and can be quite complicated.

As a landlord with an investment property, you’re likely to pay tax at every stage of the life of that investment – when you buy the property, when you let the property, and later when you sell or pass it on. Letting a property is like any other business – if you make a profit, it’s liable to taxation.

In the current 2022/23 tax year, HM Revenue & Customs (HMRC) introduced some important changes to a number of different forms of tax that apply. The tax changes could also affect income landlords receive from other sources.

Key tax changes introduced for the 2022/23 tax year affecting landlords

National Insurance contributions

National Insurance contributions (NICs) increased by 1.25% from 6 April. Rental income is not subject to NICs unless you’re a professional landlord running a property rental business – being a landlord is your main job, you rent out more than one property and buy new properties to rent out. If you are a professional landlord running a property rental business, currently you must pay NICs if your earnings exceed the Class 2 and Class 4 NIC thresholds.

If you’re not a professional landlord but you earn income from other sources upon which you currently pay NICs, for example, if you’re an employee, sole trader or member of an ordinary partnership, your NICs have increased by 1.25%. If you employ people, such an administrator or maintenance person for your property portfolio, your share of their Class 1 NICs increased, while any Class 1A and 1B payments employers pay on employee expenses and benefits have also increased.

Income Tax

Any rent that you receive, any non-refundable deposits or any additional payments that you receive from your tenants, such as the cleaning of communal areas, property repairs or utility bills all class as income and must be declared. The same principle applies for any money that’s kept over from a returnable deposit at the end of the tenancy.

The personal allowance, the amount upon which no Income Tax is payable, is £12,570 during this tax year – this equates to £1,048 a month or £242 a week. The personal allowance limit is £100,000, so if you earn over £100,000 a year, your personal allowance will be reduced by £1 for every £2 earned over the £100,000 limit. 

Beyond the personal allowance, in England, Wales and Northern Ireland, the basic rate of 20% is payable on taxable earnings between £12,571 and £50,270 a year, then 40% (the higher rate) on £50,271 to £150,000 and 45% on annual earnings over £150,000. The tax rates in Scotland are different, but the personal allowance is the same.

Tax on dividend income increased by 1.25% from 6 April this year. If you earn any income from dividend payments, after your £2,000 annual allowance, and if you’re a basic rate Income Tax payer, you’ll pay 8.75% tax on dividend payments (7.5% was the previous percentage). If you’re a higher rate Income Tax payer, from 6 April you now pay 33.75% (up from 32.5%) and additional rate Income Tax payers will pay 39.35% (up from 38.1%) on their dividend income.

Value Added Tax 

From April this year, landlords with a VAT-registered business with a taxable turnover below the VAT threshold of £85,000 will need to comply with Making Tax Digital (MTD) for VAT requirements. These mean you must maintain digital records using MTD-compatible software and report figures online to HMRC each quarter.

All current Self Assessment taxpayers, which includes private landlords, will need to comply with MTD for Income Tax requirements when they are introduced. Beginning from 6 April 2024, this affects any private landlords who currently file Self Assessment tax returns and will require you to also use MTD-compatible software to maintain digital records of your income and outgoings. 

You’ll need to send quarterly updates to HMRC online and submit an end-of-period statement and final declaration, so that your tax liability can be calculated. You’ll no longer need to complete a Self Assessment tax return once MTD for Income Tax Self Assessment is introduced.

Capital Gains Tax

If you’re looking to sell a buy-to-let residential property, you may be subject to a Capital Gains Tax bill depending on the gains you make, rather than the amount you sell the property for. Equally, if you’re letting all, or part of the property, a proportion of any gain when you sell it could be taxable.

In the 2022/23 tax year, landlords and investors who sell a residential property will have 60 days (up from 30 days) to complete the Capital Gains Tax process. This was announced during the Autumn Budget in late 2021, doubling the time property investors have to report any Capital Gains Tax. 

Landlord Tax Relief

Buy-to-let mortgage tax relief is now reduced to zero. During the 2022/23 tax year, landlords receive a 20% tax credit on interest payments. It is worth noting that the mortgage restrictions only apply to individuals. That is why many people have chosen to purchase buy-to-let properties through a limited company, where they are effectively taxed on profit rather than income.

Starting or expanding your property portfolio?

Whether starting or expanding your property portfolio, we're here to help. To find out more, contact The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Long-Term Rental Sector

Legislation has had an impact on the buy to let sector over the last decade. It is still a strong market to be in though and I am still getting plenty of enquires from both experienced and new landlords. This article looks at some of the changes that have taken place. 

Landlords still positive following recent and proposed legislative and tax changes

The government published its long-awaited rental reform white paper on 16 June 2022, which included measures to encourage pet ownership and scrap Section 21 evictions.

Buy-to-let landlords across the country are getting their heads around recent and proposed legislative and tax changes, but many are still positive about finding attractive returns in the long-term rental sector. However, the picture is still somewhat mixed over whether buy-to-let landlords are staying or leaving the sector right now.

Property investment 

Research looking at the mortgage market has revealed that the number of buy-to-let mortgages issued in the year to February reached 275,600 – the highest figure since 2016[1]. 

New mortgages taken out by buy-to-let landlords – either those new to the property investment world or those buying additional properties – was up to 110,000. This compares to just 75,800 taken out in the 12 months to February 2020, according to the research. 

Raised rents

But more than a third of landlords have considered selling rental properties due to the loss of the buy-to-let mortgage interest tax relief, while one in four have raised rents[2].

Landlords could previously deduct mortgage expenses from their rental income in order to help reduce their tax bill. However, this started to be phased out in 2017 before being stopped in April 2020. 

Rental properties 

Now landlords receive a tax credit, based on 20% of their mortgage interest payments, which is less generous for higher rate taxpayers, who previously received 40% tax relief on mortgage payments.

The findings reveal that 37% of landlords have considered selling rental properties as a result of the recent changes. Nearly eight in ten landlords (77%) feel the changes unfairly punish them, with the same percentage (77%) saying there should be more support for landlords, especially post-pandemic, leading to many considering selling their properties. 

Legislative changes

More than a quarter (26%) of landlords with larger portfolios (20 plus properties) have reduced their portfolios to reduce the tax impact, compared to 13% of those with between two to five properties. 

Over half (55%) of those landlords planning to sell up identified recent legislative changes, followed by forthcoming legislative alterations, such as the scrapping of Section 21 (the first step a landlord currently has to take to make a tenant leave their property).

Tax changes 

The changes, however, may also be forcing up costs for some tenants, with one in four landlords (25%) having raised rents to cover the increased tax burden. This figure jumps considerably to 58% for landlords with 20 or more properties on their books.

In recent years, there have been numerous regulatory and tax changes for landlords to deal with. The loss of the mortgage interest tax relief and other legislative changes are causing some to question whether to leave the sector altogether by selling some or even all of their properties in order to help reduce their tax burden. Rental increases are also a reality, with one in four landlords recouping losses from tenants, many of whom will be struggling with the rising cost of living.

Rental income 

The survey also reveals that the average total gross rental income is £17,200, which is up on the £15,000 calculated in 2018. More than half (56%) of landlords have a rental income of less than £20,000 and 29% bring in between £20,000 and £49,999. Landlords earning more than £50,000 from their portfolio account for 15% of the survey participants.

The government estimates that, on average, landlords earn 47% of their total income from property – an increase on the 42% recorded in 2018.

Getting ready to make your next buy-to-let move?

It’s a complex time to be a landlord. We can help you get your head around the rules when investing in buy-to-let property, managing your portfolio and looking to raise mortgage finance. For more information, contact The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Source data:  [1] https://www.knightfrank.com/wealthreport

[2] Research conducted by BVA BDRC with 796 UK landlords between 5–21 December 2021