CASE STUDY – Joint Borrower Sole Proprietor: First Time Buyer

We were approached by a first-time buyer who found themselves in a challenging but increasingly common predicament.

Our client was a dedicated student pursuing their Masters degree, with aspirations to continue to PhD level. Whilst they had successfully saved a deposit for their first property purchase, their status as a full-time student meant he lacked the regular income required to meet standard mortgage affordability criteria.

The situation was made more complex by the family dynamics involved. The client’s father was both willing and financially able to help their child achieve homeownership, recognising the benefits of stability during their academic journey. However, the father was understandably concerned about the financial implications of traditional joint ownership arrangements.

As an existing homeowner, the father was acutely aware that entering into a joint mortgage with joint ownership would trigger higher rate stamp duty charges, typically applied to second property purchases. This would not only increase the immediate cost of the transaction significantly but could also create potential future liabilities around inheritance tax and capital gains tax when the property was eventually sold. The family needed a solution that would enable the client to purchase their first home whilst avoiding these costly complications.

The core challenge was a classic catch-22 situation that many families face in today’s property market. The client had the deposit funds available but lacked any income due to their full-time student status. Meanwhile, the father had surplus income and wanted to help, but couldn’t afford the tax implications of joint ownership.

Traditional guarantor mortgages, which might have provided a solution in the past, have largely disappeared from the mainstream mortgage market. Most contemporary lenders require both parties to be named on both the mortgage and the property deeds when providing joint finance, which would have triggered the unwanted second property stamp duty charges.

The tax implications were substantial and would have made the purchase financially unviable. As a second property owner, the father would face higher rate stamp duty, potential capital gains tax exposure on any future sale, and possible inheritance tax complications. These factors combined to create a seemingly insurmountable barrier to what should have been a straightforward family assistance arrangement.

Our approach required deep knowledge of the evolving mortgage market and the specific policy nuances of different lenders. We recognised that this situation called for a Joint Borrower Sole Proprietor solution, a relatively specialised product that allows one party to provide income support while only the other party holds legal ownership of the property.

Drawing on our comprehensive understanding of lender criteria, we identified institutions that offered this specific arrangement. However, even within this niche market, most lenders typically require both parties to demonstrate some level of income. This created an additional hurdle, as our client had no income due to their student status.

Our expertise proved crucial in navigating these complex requirements. We approached lenders who we knew from experience had more flexible criteria, specifically those who didn’t require the sole proprietor to have any income when a joint borrower was providing the affordability assessment. This required careful analysis of individual lender policies and criteria, as these details are rarely advertised publicly.

We worked closely with both the client and their father to structure the application optimally, ensuring all documentation clearly demonstrated the arrangement and met the lender’s specific requirements for this type of mortgage product.

We successfully secured a Joint Borrower Sole Proprietor mortgage that perfectly addressed all the family’s concerns. The solution provided 90% loan-to-value financing, maximising the client’s purchasing power whilst minimising their deposit requirements.

Most importantly, the arrangement preserved the client’s first-time buyer status, enabling him to benefit from the full first-time buyer stamp duty relief. Instead of facing £19,500 in higher rate stamp duty charges that would have applied with joint ownership, the family paid £0 in stamp duty, representing a massive saving that made the entire transaction financially viable.

The legal structure meant that whilst both individuals were party to the mortgage (with affordability assessed solely on the father’s income), only the client was named on the property deeds. This protected the father from capital gains tax implications when the property is eventually sold, as it would be the client’s primary residence throughout their ownership.

Beyond the immediate financial benefits, the solution provided our client with invaluable peace of mind during their studies. Rather than facing the uncertainty of rental accommodation – with potential rent increases or notice periods that could disrupt their academic progress, they now had the security of their own home. This stability was particularly important as they planned to continue their studies to PhD level, providing a solid foundation for several more years of academic pursuit.

The client and their father were delighted with the outcome, having achieved their goal of homeownership while avoiding the substantial tax penalties that would have made the purchase prohibitively expensive under traditional joint ownership arrangements.

David Grimshaw, Managing Director