A new mortgage lender is allowing buyers to apply for bigger loans by adding family and friends to their home loan application – but some experts have raised concerns about the move.
These home loans, which are known in the industry as a joint borrower sole proprietor (JBSP) mortgage, allow people to buy a property that might otherwise be out of reach.
Essentially, they allow a buyer to add the income of a family member or even friend to the application to increase the available funds to cover monthly repayments.
Their income, including retirement income, is used to boost the calculations that are used to decide how much the buyer can borrow.
These individuals don’t own the home or go on the property deeds, but they can potentially benefit from the arrangement.
For example, these ‘income boosters’ can choose to contribute to the monthly payments in return for building equity in the property that they could claim back in the future. Alternatively, they can remain on standby should the buyer need support to cover repayments.
Yet some have raised questions – with one expert saying people needed to go in with their ‘eyes wide open’.
In the past, parents might have acted as guarantors for the mortgages of adult children – however these new schemes go much further.
For example, the fintech mortgage lender Gen H has just widened eligibility to accept nieces, nephews and friends as what it calls income boosters.
Friends can act as income boosters on mortgages up to and including 80 percent loan to value (LTV). Nieces and nephews can be income boosters on mortgages up to and including 95% LTV.
A survey of Gen H’s income booster customers found 62.4 percent are under 40, while 37.6 percent are over 40 and 16.4 percent are over 50.
The Gen H chief executive, Will Rice, said: “We’ve seen how many people our income booster product has been able to help. This is why, when our brokers began requesting that friends be able to act as income boosters, we took note.
“I’m delighted to introduce this change, especially in light of two consecutive rate reductions, because it means we’ll be able to support even more aspiring homeowners. This important development is thanks to the attention and advocacy of our broker partners.”
Justin Moy, Managing Director at EHF Mortgages, told Newspage: “Any innovation is superb for the mortgage market, and this extension of Gen H’s policy will allow more buyers to afford their first or subsequent properties by going down the joint borrower and sole ownership route.”
However, he warned: “Those helping a borrower need to beware of the impact on their own finances. After all, the mortgage will become a commitment on their own mortgage applications and will limit their own financial capacity.
“With older family it may not be so much of a problem, but if friends are of a similar age, this could create an uncomfortable issue when they wish to move or refinance.”
Stephen Perkins, Managing Director at Yellow Brick Mortgages, said: “Anything that can help more people get onto the housing ladder should be welcomed, but the friends or family members in question need to go in eyes wide open.
“Having your income used to assist a friend’s mortgage could have a potential impact on your own credit file and personal borrowing potential in the future.”
Michelle Lawson, Director at Lawson Financial, described the Gen H deal as a “great piece of much needed innovation”.
However, she said: “Buying a property is a costly investment and not an easy exit in the event of friendship fall-outs and changes of circumstance.”
Dariusz Karpowicz, Director at Albion Financial Advice, called on other lenders to follow suit.
“Extending income booster options to friends and extended family is a smart way to fill a gap in the market, making homeownership more accessible for many,” he said.
“This approach is especially helpful for first-time buyers and those struggling with affordability, and its popularity is likely to rise in the coming years.”
Scott Taylor-Barr, Principal Adviser at Barnsdale Financial Management, said: “JBSP is effectively a re-branding of the Guarantor mortgages we saw a decade ago.
“They are incredibly useful when done properly and allow family members to help each other to buy a property, which can be invaluable for first-time buyers, but also those looking to buy after a relationship breakdown too.”
