Emilia Hunt - Sales Director at Metro Finance, the largest shared ownership mortgage provider, shares her most frequently asked questions as more people look to get onto the property ladder in the New Year.
What is New Affordability?
If you’re not already aware, Homes England have recently announced a number of changes to their guidance including the removal of the Homes England calculator to check affordability for customers. For many this may feel like a big change, but is it really?
What is Affordability Assessed on?
Currently shared ownership affordability uses the Homes England calculator, which uses the parameters of affordability between 25% - 45% debt to income as a general range. The calculator specifies certain income types, and calculates the debt to income. In general, the principle was that no more than 45% of your take home pay could go towards mortgage, rent, service charge and commitments. However, it failed to take into consideration certain things such as childcare and maintenance. And the calculator only created an ‘Anchor Point’ or ‘Start Point’ to base the rest of the assessment on.
What are the Changes?
From 1st May, the customer will be assessed based on a budget planner, as well as mortgage lender affordability, which previously was something that happened after the calculator; in effect, to ‘back-up’ the result of the calculator. They will still need to be signed off by a suitably qualified mortgage firm, who have experience in dealing with shared ownership. Ultimately, this could be a very positive change for the industry. It was felt that customers may have been missing out on the best share for their circumstances because there was too much reliance on the calculator. This could mean customers are able to purchase a higher share, or some customers a lower share if more suitable. It allows a tailored approach to each customer.
The customer is expected to purchase the most ‘suitable’ share for their circumstances, determined by the advisor. i.e. the share that is affordable for them on their budget planner and mortgage lender affordability. It is still the use of the government funds, so the customer is not choosing to purchase a lower share, if a higher share is affordable. Likewise, if a higher share would not be considered sustainable then this would not be advised. In essence the customer is still buying the most affordable/sustainable maximum share, however care must still be taken.
Your Best Interests at Heart
Unlike an open market property, there is still another party with interest in the property – you! Your chosen panel advisors are responsible for making sure that they are protecting your asset as well as the buyer. The sign-off process remains the same, in the sense that your panel advisor will need to check all the documents to ensure sustainability. For this same reason, you may want to review other policies. Homes England have been clear that everything must be very transparent including:
- Your first come, first served process
- Adverse policies
- Minimum deposit requirement
