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  • FIRST POST
    • mmlady12
    • By mmlady12 6th Aug 18, 5:47 PM
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    mmlady12
    Catch 22- Shared ownership- confused millenial ! Rejected by HA for earning to much but below 90,000
    • #1
    • 6th Aug 18, 5:47 PM
    Catch 22- Shared ownership- confused millenial ! Rejected by HA for earning to much but below 90,000 6th Aug 18 at 5:47 PM
    Hi


    I am a 26 year old who is on GBP 48,000 a year and my take home is around GBP 2500 a month (after tax and a salary sacrifice for shares scheme at work)


    I am trying to get onto the property ladder and saw a decent 2 bedroom in north London for GBP 270,000. The local housing association were selling a 60% share for GBP 162,000 and rent on the 40% was around GBP 250, service charge around GBP 91. Today I was told I was priority number 3 because the other two applicants had a less annual income and were considered a priority because of this due to the local housing association policy.


    How is this fair? I feel like these government schemes are a catch 22- especially for young professionals who are doctors/lawyers/accountants. We earn too much to be considered by local associations but meet the minimum annual threshold set by the association (in this case it was GBP38,000) ...


    the association also have a financial assessment that priority 1 candidate has to do before being accepted by the housing association... the main requirement is that 45% or more of net income should not be spent on rent/mortgage and service charge and that a mortgage can only be given for 3.5 of ones salary.


    That means that.. if a candidate was on 40,000 a year..and after tax they had 2300 a month.. only 45% of that 2300 could be used as rent/mortgage/service charge.. which is 1035 which just about covers the mortgage/rent and SC calculations I did below..


    When I did my calculation the below calculations I did on the share to buy calculator regarding mortgage monthly quotes.


    E.g for a mortgage of 162,000 the 60% share association are offering.. and with a 20,000 deposit the mortgage, rent and service charge will be:


    1. Mortgage 670 a month- 2 year fixed 2.19% interest
    2. Rent- 250
    3.Service Charge -90
    Total= 1010 a month


    So in order to meet the threshold that no more than 45% of ones net income should not be spent on rent/mortgage and service charge..one needs to be earning 2244 or more a month.(1010/45%=2244)


    2244 a month after tax is around 39,000 a year.


    however a salary of 39,000 to 40,000 multiplied by 3.5 get you a mortgage of only 120,000 which is less than the 162,000 60% share being sold? So how will that work? Candidate 1 who has priority would if on 38,000 would only be able to get a mortgage of 133k..unless i guess they have a deposit of 162-133k= 29k


    So basically I have been penalized for studying and earning to much


    any advice on next steps.. as I do not want to invest time in viewing housing association flats for them to tell me i earn to much.. could help to buy be an option? The issue I have with Help to buy is new builds on average go for 450,000 for a 2-3 bed in north London- totally out of my budget!


    Please help!
    Signed confused millennial!!
    Last edited by mmlady12; 06-08-2018 at 6:03 PM.
Page 2
    • mmlady12
    • By mmlady12 6th Aug 18, 7:37 PM
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    mmlady12
    There are also people who can't live with their parents as well, so be thankful for what you do have, and the good things that have helped you get to where you are today (including your own hard work). I couldn't afford to live in London either when I worked there. I had a 2 hour commute each way. I left my flat at 6am and often got home at 10pm when I worked in the city. During the IRA bomb scares even later. Wish I could still walk the 2 miles to the station as quickly ha ha! I remember dropping my stiletto into the line getting on the train. That was an interesting journey across London.
    Originally posted by lookstraightahead

    hehe! different times completely- i may never understand your struggle back then but appreciate the context. I am not living rent free btw- I pay 500 a month, pay the internet & phone bill and do my own food shop as my mum is unemployed and can't pay the rent with her HB.
    • haras_nosirrah
    • By haras_nosirrah 6th Aug 18, 7:39 PM
    • 1,630 Posts
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    haras_nosirrah
    I am a mortgage advisor who specialises in shared ownership and has done for 10 yrs. I also do financial assessments for a london housing association. This is how we do it based on the housing association I assess for - others may be slightly different but I would expect them all to be similar.

    With housing associations the criteria normally goes
    live and work in area
    people with children
    couples
    singles

    in terms of the affordability it would be that the maximum is 45% of their net salary (after deductions for loans, pensions, credit cards, maintenance etc) and more than 35% of their net pay. It has to be between these two parameters.

    If under 35% then you are 'too affordable' and the scheme is designed for people who cannot afford to get onto the open market rather than those who want cheap housing. They would be expected to buy more and if they can afford over 75% would not get the property.

    over 45% would be outside affordability

    We base the mortgages at a rate of 5% to account for rate increases (and because we find this roughly matches the lenders affordability)

    It is possible the others lived closer, there were two of them, rather than it just being on the affordability.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • mmlady12
    • By mmlady12 6th Aug 18, 7:48 PM
    • 18 Posts
    • 1 Thanks
    mmlady12
    Thanks for context around the financial assessments you do for the housing association.. when you say the others live closer.. are you talking about miles? since I live in the same borough as the property I wanted to buy..


    why are couples seen as priority over a single applicant?


    could you explain more about the financial assessment? I would like to prepare myself for the next application I do..if I get to financial assessment stage..


    Isit true many people fall at this stage? if so why is this?
    • haras_nosirrah
    • By haras_nosirrah 6th Aug 18, 7:50 PM
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    haras_nosirrah
    Sigh


    I am not being a drama queen about the situation or complaining at how unfair life is. I am just a bit annoyed and was complaining that I fall into a grey area of millennials who have worked super hard to get to a good stage and earn a good amount a year.. but certain schemes are not accessible to me .. despite shared ownership eligibility criteria being 90,000 on the government website.


    and yes the other candidates probably earn 46,000 - 48,000 making them eligible
    =
    HTB is an option..but when I did the calculations.. I would be spending around 1800-1900


    e.g on average new 2 beds in north London go for 450,000.


    1. I try to by 80% that's 360,000
    2. Equity loan 90,000
    3. Mortgage 337,500 (after deposit has been removed)
    4. on a 4.8% interest that's around 1900 a month
    leaving me with 600 on bills/council tax and other expenditure. which I might be able to manage just about


    It is hard for young single people.. I am not trying to be a spoilt millennial.but a lot of my peers are struggling.. these schemes wither work if you are a low earner or you have a partner and have a joint income..


    I have none of those at the moment.. single as hell!!!
    Originally posted by mmlady12

    I have done a quote for your help to buy property
    450k with the equity loan and a mortgage of 337,500

    on a 2 yr fix you would be looking at 1056 a month, on a 5 yr you would be looking at 1121

    I can't comment on affordability due to not seeing payslips and bank statements but just to let you know that you aren't looking at anywhere near 1900 a month. I have based the above on a 35 yr mortgage
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • haras_nosirrah
    • By haras_nosirrah 6th Aug 18, 7:56 PM
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    haras_nosirrah
    Thanks for context around the financial assessments you do for the housing association.. when you say the others live closer.. are you talking about miles? since I live in the same borough as the property I wanted to buy..


    why are couples seen as priority over a single applicant?


    could you explain more about the financial assessment? I would like to prepare myself for the next application I do..if I get to financial assessment stage..


    Isit true many people fall at this stage? if so why is this?
    Originally posted by mmlady12
    Couples are seen as a priority simply because the housing association are then housing two people rather than one.

    With the assessments I don't get to decide who does and doesn't get the property - I get sent the person in top position to assess. If they pass and can get a mortgage they get it, if they don't they don't and it goes to number 2 on the list.

    It is easier to get newbuilds than resales would be my tip - simply because rather that 10 people going for 1 property you have 10 people going for lots of properties so law of averages mean you are more likely to get it
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • sal_III
    • By sal_III 6th Aug 18, 7:59 PM
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    sal_III
    You are well within the SO criteria, it's just on this specific occasion there were applicants, better matching the HA criteria.

    People with lower income, are able to save less, making it harder to get a higher deposit and/or mortgage - this is why they have priority for SO.

    Re HTB, your calculations are wrong and you can get 2bed with HTB for less than 350k in decent area. For example:

    https://www.rightmove.co.uk/new-homes-for-sale/property-74468687.html

    For 320k with HTB an 5% deposit the math is:

    Deposit: 16k
    Equity loan: 128k
    Mortgage: 176k (well within your affordability)

    Monthly:

    Mortgage: ~750
    Service charge+ground rent: ~250
    Total: 1000

    After 5 years if you can't afford or doesn't want to repay the equity loan, or pay the interests on it - just sell.

    There.
    • mmlady12
    • By mmlady12 6th Aug 18, 8:00 PM
    • 18 Posts
    • 1 Thanks
    mmlady12
    great thanks! I attached the quote i got from help to buy website.. and increased to 35 years.. and it was giving me a monthly calculation of 1600.. how did you get a lower monthly mortgage?. this repayment is not considering the 90,000 loan which is interest free for 5 years right? So one would or should start making provisions to pay back that loan.. unless it is taken at market value when property is sold.... so that's how I got to the 1900 number a month
    • mmlady12
    • By mmlady12 6th Aug 18, 8:02 PM
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    mmlady12
    MSE wont let me post links.. so can't show the quote.. but i used the helptobuy calculator
    • Klr005
    • By Klr005 6th Aug 18, 8:05 PM
    • 22 Posts
    • 11 Thanks
    Klr005

    but how is someone who earns less than me more in need?
    Originally posted by mmlady12
    Because they meet the criteria for this property but might not for another property if it was more expensive. Earning more, you could also meet the criteria for other properties.
    As their options are more limited, they get first dibs.
    • sal_III
    • By sal_III 6th Aug 18, 8:06 PM
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    sal_III
    The HTB calculator is assuming 4.8% rate on the mortgage which is ridiculous for the next several years. also you don't have to repay the loan out of your poket - just sell it and move on with the build up equity in the last 5 years.

    I have mentioned this before - just ignore the equity loan and just act as if you bought a 192k (using my above example) property that was upgraded to 320k property for free for 5 years. Sure at the end of the 5 years you won't benefit from potential price rise on 40% of the equity, but who cares.
    • haras_nosirrah
    • By haras_nosirrah 6th Aug 18, 8:09 PM
    • 1,630 Posts
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    haras_nosirrah
    great thanks! I attached the quote i got from help to buy website.. and increased to 35 years.. and it was giving me a monthly calculation of 1600.. how did you get a lower monthly mortgage?. this repayment is not considering the 90,000 loan which is interest free for 5 years right? So one would or should start making provisions to pay back that loan.. unless it is taken at market value when property is sold.... so that's how I got to the 1900 number a month
    Originally posted by mmlady12
    The help to buy calculator may be giving you a rate which is much higher (same as we have to use 5% on the shared ownership calculator when you won't be paying anywhere near that)

    realistically you are looking at a rate of 2% for a 5 yr fix (subject to affordability, credit checking etc etc)

    equity loan will cost you 131 a month after yr 5

    I got a lower mortgage as I am a mortgage broker - I have access to the actual lender rates and it won't be anywhere near 4.8%
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • haras_nosirrah
    • By haras_nosirrah 6th Aug 18, 8:17 PM
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    haras_nosirrah
    In London I believe it is up to a 40% equity loan

    I think though 450k may be too high on the shared equity calculator for your income. Anything closer to the 400k mark?

    400k property using the 40% equity loan and a 20k deposit (and basing on 25 yrs rather than 35 yrs) would be 925 a month for a 5 yr fix. The equity loan would be 233 if/ when it kicks in but I would use the cheaper time period for the next 5 yrs to save as much as possible and with a combination of wage increase and savings aim to staircase to 100% after the 5 yrs.

    probably cheaper than the shared ownership.

    I am not saying this is 100% doable or you would qualify those rates as just going on a very basic outline and haven't done a fact find or seen evidence of income so don't take this as 'advice' but just saying that the help to buy is worth a second look.
    Last edited by haras_nosirrah; 06-08-2018 at 8:26 PM.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • mmlady12
    • By mmlady12 6th Aug 18, 8:22 PM
    • 18 Posts
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    mmlady12
    okay thanks.


    What is involved in the assessment? Can you give more detail.
    Apart from the mortgage/rent and service charge being covered by a max of 45% of your net salary..and mortgage quotes at 3.5 times your salary.. what else do you look for when reviewing ones financial documents statement.


    I recently betted in the world cup and won a good return.. I am not a regular better but will that go against me in a financial assessment
    • haras_nosirrah
    • By haras_nosirrah 6th Aug 18, 8:31 PM
    • 1,630 Posts
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    haras_nosirrah
    okay thanks.


    What is involved in the assessment? Can you give more detail.
    Apart from the mortgage/rent and service charge being covered by a max of 45% of your net salary..and mortgage quotes at 3.5 times your salary.. what else do you look for when reviewing ones financial documents statement.


    I recently betted in the world cup and won a good return.. I am not a regular better but will that go against me in a financial assessment
    Originally posted by mmlady12
    It is just a government calculator - simple income vs contractual commitments (loans, credit card, maintenance, car finance)

    On ours it is 4.5x salary not 3.5x salary.

    If every second transaction is betting I would be concerned but only if showing signs of it being a problem e.g betting while in an overdraft, massive bets to try to win back losses, payday loans. People can spend their disposable income on what they like so a flutter on the world cup wouldn't be a problem at all
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • mmlady12
    • By mmlady12 6th Aug 18, 8:32 PM
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    mmlady12
    how does it work with buying out the housing association share/staircasing? e.g with shared ownership?


    e.g property is worth 270,000. I buy 60% which is 162,000


    HA owns 108,000.. i know about staircasing and some HA allow you to do this.. others do not..
    How does it work if one wants to buy lets say an additional 25% 2 years later


    so property is worth in 2 years 280,000.. if i buy 25% additional via staircasing.. I would have to pay 25% of 112,000 (new value of 40% HA share after 2 years) which is 28,000.. where would I get that money from? if not from savings.. then how does re-mortgaging work? Can you remortgage on a 60% ownership of a property?
    • mmlady12
    • By mmlady12 6th Aug 18, 8:35 PM
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    mmlady12
    great! makes sense
    • haras_nosirrah
    • By haras_nosirrah 6th Aug 18, 8:42 PM
    • 1,630 Posts
    • 2,899 Thanks
    haras_nosirrah
    how does it work with buying out the housing association share/staircasing? e.g with shared ownership?


    e.g property is worth 270,000. I buy 60% which is 162,000


    HA owns 108,000.. i know about staircasing and some HA allow you to do this.. others do not..
    How does it work if one wants to buy lets say an additional 25% 2 years later


    so property is worth in 2 years 280,000.. if i buy 25% additional via staircasing.. I would have to pay 25% of 112,000 (new value of 40% HA share after 2 years) which is 28,000.. where would I get that money from? if not from savings.. then how does re-mortgaging work? Can you remortgage on a 60% ownership of a property?
    Originally posted by mmlady12
    Staircasing is based on market value. I don't know any housing associations that don't allow staircasing but some properties have a cap of 80% ownership but generally this is in rural areas (known as a resale price covenant rural exception scheme)

    Most people would remortgage to staircase e.g. if you buy at 260k 60% with a 20k deposit then your mortgage would be 136k

    2 yrs later your mortgage is down to 130k property value is 280k and you want an extra 25% share (I would never recommend to go to 85% on a shared ownership but that is by the by)

    your deposit is 60% of 280k minus 130k mortgage = 38,000
    this gives you a 38k deposit against a new property value of 238,000 (85% of 280k) so you would need to raise a 200k mortgage and the rent would go down to 15% rather than the 40% of the full property rent that it was so if the rent was 250 on the 60% it would be 93.75 a month on the 85%

    I think the best thing to do would be to speak to a broker who knows shared ownership and shared equity and see which is the better option for you. I just wanted you to know your options aren't as limited as you feared.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • mmlady12
    • By mmlady12 6th Aug 18, 9:55 PM
    • 18 Posts
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    mmlady12
    thanks! I get it
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