YOU could get on the housing ladder using a mortgage aimed at helping first-time buyers purchase a home sooner.
Income booster mortgages, also known as “joint borrower, sole proprietor”, could get you on the ladder years earlier by boosting the amount you’re able to borrow.
They work by adding the income of a close friend or family member to your mortgage application.
The other person doesn’t have to live in the property and they also don’t have to be granted ownership rights or listed on the property deeds.
So for example, you could add your parents as joint borrowers and include their income in the application alongside your own – but you would still be the sole owner of the property.
Analysis by Gen H suggests first-time buyers in London would be able to buy a home six years earlier if they used an income booster.
People using income boosters in the capital have an average age of 29 – while the average first-time buyer in London is 35.
The average first-time buyer across the UK is 33.8 years old, according to separate analysis by Finder.
Without the extra support, an average buyer in London would need to borrow roughly eight times their income to afford a home.
But with an income booster, you would need just 2.7 times the combined income.
It essentially means you can get on the ladder earlier without stumping up any extra cash.
Buying sooner also means you can spend those years building up equity in your home rather than making rent payments.
David Hollingworth, associate director at L&G Mortgages, said: “Affordability issues are usually at the heart of the challenges for first time buyers.
“High house prices and the difficulty in raising a big deposit whilst paying a steep rent will often make home ownership a difficult target to reach.
“Many lenders will allow a parent or close family member to be a joint borrower on the mortgage, and in the past a joint borrower would typically need to be a joint owner of the property.
“But as lenders have increasingly recognised that parents may simply want to help achieve a higher borrowing amount rather than have a stake in the property, more products have been developed that allow the first-time buyer to be the owner.”
This also means the first-time buyer will still be eligible for stamp duty relief.
Stamp duty is a tax you might have to pay when you buy a property, but if you’re a first-time buyer you don’t have to pay it on properties worth up to £300,000.
If your parents were on a joint mortgage with you rather than using an income booster, you wouldn’t be eligible for the stamp duty relief if they’ve already got their own mortgage.
Lenders that offer income booster mortgages include Barclays, Bank of Ireland, Skipton Building Society, NatWest, Metro Bank and Gen H.
The rates for an income booster mortgage are usually the same as the lender’s standard rates.
However some lenders won’t accept non-family members as boosters, and you should speak to a mortgage broker who can compare options across different lenders.
What are the potential downsides?
There are some factors you should bear in mind before taking out an income booster mortgage.
For starters, the “booster” is jointly responsible for the mortgage even though they don’t own the property.
Nicholas Mendes, mortgage technical manager at John Charcol, says this means that if payments are missed then the lender can pursue the booster for money.
Plus, the booster’s own ability to borrow later can be restricted as the mortgage will sit on their record.
“That is why it is vital to have a clear family discussion, take independent legal advice, and have a plan for when the buyer can take on the mortgage alone,” he said.
Everyone involved, including the first-time buyer and the booster, should be aware of what the arrangement means for them and what they will do if any payments are missed.
There are also more things for the buyer to consider.
Rachel Geddes, strategic lender relationship director at Mortgage Advice Bureau, says that because the mortgage is a specialist product it’s only offered by a select number of lenders.
That means that when you come to remortgage, it can restrict your options.
Plus, if the booster is older it can sometimes shorten the term of the mortgage – which could lead to higher monthly payments.
If you think you might be able to qualify for a mortgage by yourself within the next year, it might be best to hold off and consider alternatives.
You should ideally consult with a mortgage broker to make sure an income booster is right for you and meets your long-term goals.
How else could you get on the ladder?
If an income booster mortgage isn’t right for you, there are still other ways you can get onto the ladder.
For those struggling to save a deposit, Skipton Building Society does not require one for its Track Record mortgage, which uses borrowers’ past history of paying rent to help determine what they can borrow.
To be eligible for the deal you need to meet the following criteria:
- Be over the age of 21
- Haven’t owned a property in the UK in the last three years
- Not have missed a debt payment
- Want to borrow up to £600,000
April Mortgages also offers a 100% mortgage, which allows people to buy a house without a deposit.
To be eligible home buyers need to have a household income of at least £24,000 and be looking to buy or remortgage a house that is valued at more than £75,000.
The deal is only available on a ten or 15-year fixed-term, so buyers would need to be happy to lock in for this length of time.
And broker-only lender Accord has a first-time buyers’ mortgage that only needs a £5,000 deposit.
Plus, some lenders have relaxed their rules recently to allow buyers to borrow more.
HSBC says changes to the way it assesses how much applicants can afford could allow buyers to borrow an extra £39,000 on average.
Halifax and Santander have also relaxed their rules.
