First-Time Buyer and Second-Time Buyer Mortgage

Should we choose between joint tenants or tenants in common? What’s the difference?

This question is really one to ask a solicitor, but generally speaking, a couple would usually do this as joint tenants. Under this setup, if one person dies, their share gets passed to the other property owner.

Tenants in common often applies when friends are buying together. Here, if one person dies, their share of the property goes to their next of kin – their children or parents, for example.

How does the size or source of our deposit affect our application when one of us is a first-time buyer?

The size of the deposit can impact the interest rate you have. Typically, the higher the deposit you put down, the better interest rates you will get.

Also, the source of the deposit is very important from an anti-money laundering perspective. As mortgage brokers, we have to establish the sources of the deposit and provide the appropriate documents to support this to the lender and solicitor.

If the deposit is coming as a gift from your mother, for example, we would require a gifted deposit letter confirming the terms of the gift. We would also need your mother’s ID and evidence of the build-up of the fund.

Are there alternative ways to structure the purchase to reduce costs here?

Potentially, yes. The most common alternative would be a Joint Borrower Sole Proprietor mortgage.

As an example, I’ve just had a couple where one applicant had a small mortgage with their parents on their parents’ residential property, and he was now looking to buy with his partner.

Selling that property is not an option as his parents currently live there, and he and his partner couldn’t stretch to the deposit as well as the additional stamp duty. So they decided to proceed with a Joint Borrower Sole Proprietor mortgage where they can use both incomes, but only the partner was on the mortgage.

The benefit here is that she was a first-time buyer, and therefore didn’t need to pay stamp duty. It’s becoming a more common solution. However, it does require the person who does not own the property to obtain independent legal advice, to make sure they are aware of the risks of this type of mortgage.

How can a mortgage broker help here? Have you got any final thoughts?

Exploring your mortgage options can be a bit of a minefield. There are so many products available and it’s easy to become overwhelmed. A mortgage broker will establish your product preferences and, based on the fact file about you, recommend an appropriate solution for your circumstances.

Key Takeaways:

• When a first-time buyer and a second-time buyer purchase a property together, they are generally treated as second-time buyers.
• This status means the couple will not qualify for first-time buyer benefits such as stamp duty relief or access to schemes like the Lifetime ISA or Help to Buy ISA.
• Stamp duty is calculated as if both applicants were home movers (second-time buyers).
• An existing mortgage or outstanding debt can impact borrowing potential, as lenders will take current commitments into account when calculating the maximum amount you can borrow.
• An alternative way to structure the purchase to reduce costs (specifically avoiding stamp duty in certain cases) is the Joint Borrower Sole Proprietor mortgage, though the non-owning party must obtain independent legal advice.
  
  

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

For specialist tax advice, please refer to an accountant or tax specialist.