FA says I can afford a 40% share but I dont think I can

Reue

Cycrow wrote: »

what do you spend the rest of the £1400 on then ?

Not such a stupid figure as you're making it out to be. I rent a tiny flat with my partner outside of London and my expenses are close to that.

As an example:

Rent/Bills: £500
Food: £300
Pension: £200
Transportation:£100

And I expect rent in London to be much higher. £1400 in monthly outgoings isnt insane.

Cycrow

well as i said im renting a place on my own (so likely more expensive than sharing) and im earning less.

admitadly im only spending about £100 a food and i cycle everywhere so dont really have transportation costs to worry about

i do live in west london

catflapuk

kingstreet wrote: »

Purchasing shared ownership is governed by the HCA, via the HomeBuy Agent for your area. In London, it's Metropolitan or First Steps/L&Q, but wherever it is, we all use the same shared ownership affordability calculator.

This tells the HA what share you can afford to purchase and just as it tells you how high you can go, it also says how low you can go too.

It might be worth asking the adviser to go through the HCA SO calculator with you to show you the recommended share. TBH our HA contacts ask us to let them have a copy of the completed calculator to confirm what is acceptable.

If this is a newbuild property and you are looking for more than 90%, you are going to find few lenders willing to lend and you probably will need a broker to help you with this. Have a look on the HCA HomeBuy Agent's website and find their list of approved mortgage brokers. Call a few of them and talk to them and get a feel for how they work and see if you want to work with them.

Hello, this is actually quite useful. Do you work at a HA ?

I want to buy as much as possible and I am doing it with the intention to own 100% of the property at some point, but I do not want to stretch myself to the limit as I would like to have a bit of cash in case I ever need it. Nobody is safe, as I said before, I may become sick or may have to spend some money on other things urgently. For example, I will be fully responsible for repairs of the property so I need to have back-up for that.

I any case, I'd like to ask you one more question, please let me know if you cannot help, which isnt a problem at all: say the FA says I can buy 40% of a property (for which prices have not yet been confirmed) and tells me I'd need to put down £10k. Could I then say to the HA that I am happy to buy more than 25% but feel 30% or so is my limit ? Can they decide what share I'd need to buy? Shares will probably start from 25%,so that's the minimum and I intend to put down 10%.

I just dont understand why he put me forward for 40%, when it could have been 30% for example. Sure he calculated the max I can afford for the HA to know, but I feel very uncomfy stretching my budget like that. Even FirstSteps recommends £4,000 in savings in addition to the deposit.

In other words, does the rent to income ratio have to be 45% ?

catflapuk

Cycrow wrote: »

what do you spend the rest of the £1400 on then ?
if your currently sharing rather than renting your own place, your rent and bills cant be that high.

i only earn about £1800 after tax, but renting a place of my own (not sharing) and i come out with about £600 spare each month

you really dont need much money for furniture, most of it you dont need to get straight away.

When i moved into an unfurnished place, they only thing i got straight away was the bed, the rest came later

I pay off a student loan overseas and I'm nearly finished.

Lizling

Is there no stamp duty to pay on shared ownership? I thought it was payable based on the total value of the property. Judging by the 10% of 40% being £10,000, the flat must be worth about £250k, so potentially in the 2% bracket.

If there's no stamp duty, I think you'd be fine. You'd probably have about 3 months at before you complete, so you could save another £2k in that time, and I expect you've got a deposit from renting that would get returned to you soon after moving out, so that could go towards furniture and decorating.

catflapuk

Yes, I made the same calculation. The FA must have based his calculations on £250k, which I think is on the high end even in London. I have viewed quite a few properties (1beds) and none of them were as expensive. They were all shiny and glossy and some in quite nice locations, so maybe he assumed the 'worst case' since the HA has not yet finalised the price list.

I believe I would not have to pay stamp duty at this stage, as the share I would be buying is below £125k.

You are right, I have a deposit somewhere. Forgot about that :-)

Lizling

£250k is a lot for a 1-bed flat. Are you sure it's really worth that to you and you're not just going for it because that's what's available? You could buy a studio or cheaper 1-bed outright for about £150k with about 6 months more saving.

catflapuk

Hello Lizling,

I have not seen price lists, floor plans, specs etc. so I assume the FA made his assessment under the assumption that the max would be £250k., because if one can afford this one can afford a lower priced flat in any case. When he told me I'd have to put down £10k I asked him why he thought I would have to put down 15-20% and he said that's actually 10% and that he hadn't seen a price list either. So yeah, that works out to around £250k for the apartment.

If the apartments are any similar to the ones I saw before I would not pay this price. It could be that they are bigger, but even then I would not expect more than £240k. They are in Zone 3 after all in a not so posh London borough. The ones I have seen were between £190-230k. Who knows, some may have their own roof terrace, but the average one will probably be cheaper. I am happy with a balcony. So yeah, even with a 40% share I may end up with less than £10k deposit. I have calmed down now although I would still like to know whether they can dictate the share I need to buy. I'd be comfortable with 30% or 35%.

Also, I have found the HCA calculator on the internet and I'd have a payment to income ratio of 46%. Not ideal

kingstreet

Catflap - my firm is on the broker panel for the HCA HomeBuy Agent in the Midlands and Eastern England, Orbit and we also work with Catalyst, the HBA in the SE too. Consequently, we work with a number of public bodies and transact a lot of shared ownership and shared equity business.

As this concerns Government money, the HCA calculator works with minima and maxima as I alluded to earlier. It is designed to ensure you buy the correct share for you and the country. As I said, it sets both a minimum share and a maximum share. You will not be permitted to purchase a smaller share if the calculator indicates you can afford a larger one and vice versa.

If you have any doubts about the adviser, find another, as I suggested, or speak directly to the HomeBuy Agent and ask them to run through the calculator with them. You'll have to make a formal application to them before you can proceed anyway.

Finally, this is our method of transacting shared ownership cases;-

- verbal discussion to establish basic "qualification" for mortgage/purchase such as income, credit history, deposit etc

- complete our data capture form to enable me to check affordability with the HCA Shared Ownership Calculator and get you a mortgage agreed in principle

- make application to Orbit, the Midlands-based HCA HomeBuy Agent which vets all potential shared ownership buyers and sets the share purchase level

- view property and make formal reservation

- apply for mortgage, have valuation done and receive mortgage offer

- finalise legal work, complete and move in.

kingstreet

On the issue of stamp duty, there are two routes. You can make a "market value election" at the outset and pay stamp duty on the total value when you buy your initial share.

This is particularly useful in minimising stamp duty for those who will later staircase upto 100% ownership where the stamp duty cost will be higher at that time as a result of growth in the property value.

Alternatively, stamp duty can be deferred if the initial share is less than the SD threshold. You then pay it on staircasing, but as mentioned it is then based on the current value of the property, rather than the price at the outset.

More here;-

http://www.hmrc.gov.uk/sdlt/calculate/shared-ownership.htm