Will my son get first-time buyer stamp duty relief if we get a joint mortgage?
Q I own the house I live in and want to help my son buy a flat. If we get a joint mortgage, what rate of stamp duty will apply given that he doesn’t currently have a property? SG
A If you get a joint mortgage with your son and become the joint owner of the flat, your son will not be able to claim the first-time buyer’s stamp duty land tax (SDLT) relief announced in last week’s budget, and the higher rate – which is the standard rate plus 3% – will apply to the whole of the purchase price.
The two main reasons your son would be ineligible to claim the SDLT relief are as follows: first, one of the conditions that has to be met to qualify for the relief is that all the purchasers of a property must be first-time buyers who intend to occupy the property as their main residence. As you are not a first-time buyer and do not plan to live in the flat, that condition clearly isn’t met.
Second, your son is also excluded from making a claim for relief because, to use the official wording, “the transaction attracts the higher rates of SDLT because it is an acquisition by a person who already owns another dwelling for the purposes of the higher rates”, which describes you.
The higher rate has to apply because on buying the flat as a joint owner, you would end up being the owner of two properties. The fact that your son would be the owner of only one property makes no difference.
There is, however, a perfectly legitimate way of avoiding the higher rate of SDLT. Instead of getting a standard joint mortgage where you both have to be named as joint owners, you could take out what is called a “joint borrower sole proprietor” mortgage. This type of mortgage is only on offer from a handful of lenders, but it allows two borrowers who are close family relatives to combine their income for the mortgage application but only one of them is listed as the sole owner of the property at the Land Registry.
If only your son was listed as the owner of the property, you wouldn’t end up owning two properties, and so the higher rate of SDLT would not apply. In addition, it should also mean that as a sole purchaser who plans to live in the flat, your son would be able to claim the first-time buyer’s relief.
Even though you wouldn’t be a joint owner, you would still be a joint borrower. And as a joint borrower you would still be held “jointly and severally liable” for the mortgage, which means the lender could come after you if your son defaulted on it. Because of this risk, lenders require you to take independent legal advice to make you fully aware of what you are letting yourself in for.
If you decide that it’s a risk worth taking, you’ll need to approach a mortgage broker which specialises in joint borrower sole proprietor mortgages as they are generally not available direct to the public. One exception to this, however, is the Family Affordability Plan from Barclays.