To not get the affordability used for house buying

[Housebuyingwoes]

I am looking at buying a house. I am on a reasonable salary (above the average but not amazing) and have a decent deposit.

I am currently renting a house for £1,000pcm that I have been doing so for more than 10 years.

I have been assessed and on affordability can buy a shared ownership property for £890pcm but unfortunately do not meet the connection necessary for developments around me.

However, I can only “afford” £400pcm for a help to buy property according to affordability, and £500pcm for a non government scheme property.

I don’t understand why the affordability is so much lower for the HTB and mortgage only scheme. I get it’s on risk but the difference seems so large. One department thinks I have £890 to spend on housing another thinks I have lost £490 and can only afford £500.

AIBU to think this is bizarre and is anybody able to explain the logic to me please as feeling despondent at not being able to buy due to my lack of affordability and if I could understand why it will help me accept reality.

What % of your take home pay is £1000?

How many multiples of your income do you need/want to borrow?

Do you have other debt? Other commitments you have to make?

Did you go with a good broker who helped you?

Affordability is basically the banks saying how much they think you can comfortable afford to repay a month. With wiggle room for if rates go up, which then might do.

They are concerned that you have enough slack to always be able to make the repayments.

You have the global financial crisis and irresponsible lending/borrowing before that to thank for the affordability rules.

Sorry for delay day ran away with me.

£1000 is 48%

I want to borrow 4.5 times and have no other commitments.

I went with a broker who a number of people recommended and I got told the 4.5 times is doable and then on affordability get a reduced amount and that’s the bit I’m puzzled by.

I understand that checks are required but it just seems a random thing now rather than an exact science.

48% is a huge amount and leaves little room in case rates rise. Do you have dependents as that has a big impact? I’d probably be ok with a third of my income going on a mortgage.

Phew. 48% is massive! My max possible mortgage took me to just 20% and that was with a very good mortgage advisor.

Actually, I solely paid for a 52% mortgage for a year before that, they still wouldn’t allow anywhere near what I thought I’d be able to borrow

48% is quite standard for renting

I’ve paid £75180 over the last 7 years renting. Mortgage would be half that. Not a hope in hell of ever buying a property!

I understand that 48% is high, but the governments own shared ownership scheme works on 45%, so I don’t understand how the affordability is as low as 19% for the help to buy scheme.

Is it to do with the HTB loan aspect?

My mortgage while married was 1300 on a 4 bed semi. My rent now is 1700 on a 2 bed. I am eligible to borrow 120k which would possibly get me half a garage. I find it similarly irritating.

Guidelines are 30% of net pay for a mortgage, remember when you own you have additional costs that renting does not occur eg repairs. 3x salary rising to 3.5 x has always been the multiple as a guide. Remember interest rates will probably rise

It’s because part of the shared ownership affordability is rent as opposed to mortgage. So for example £100k property (lol but easier to do the maths)- you buy 50% share - mortgage is 50k. You buy via help to buy - gather 75% your mortgage is £75k - open market - it’s £100kz

Mortgages for shared ownership, help to buy etc are a bit more complicated and won't be as good as buying normally.

Surely paying 120 payments at £1000 a time shows affordability!

I’m with you OP. DH and I aren’t eligible for a mortgage yet our rent (which we have no trouble paying) is £300 a month more expensive than all of our neighbours. It’s a bitter pill to swallow.

But that’s what I don’t get shared ownership say I can afford £890pcm and I agree as that’s a saving of £105pcm so yes I can afford that.

HTB say I can only afford £400

Normal open market mortgage says i can only afford £500 - this is for a mortgage just over 2.5 times my salary

Difference is you also have all the house mainenence and insurance to pay once you are a homeowner that you don't pay as a renter. The HTB cost will also have rent on top of the mortgage for the part you don't own, so the monthly payment there will be more.
Paying out 48% would mean a broken boiler or a leaky roof would be out of your price range to get fixed.

Mortgage affordability is calculated based on interest rates, and hence monthly payments, that are much higher than what you'd actually pay, to ensure that you wouldn't wind up homeless if and when rates go up.

With regards to maintenance shared ownership means you are responsible for 100% of the maintenance that element is not shared.

Re mortgage - why if I do a 5 or even 10 year fixed rate can I not borrow more? That removes the interest rate increase argument but has no bearing on amount available.

Trying to buy a house is pretty crap. There isn’t any logic in any of it. The hoops you have to jump through to become a house owner is madness. I know there has to be some safeguards in place but mortgage lenders don’t look at each lender on their own merit.

Because the banks spent so many years lending to anyone and everyone without checking they could actually afford it, causing loads of their customers to default on their mortgage payments, contributing to the financial crisis in 2008/9ish that now they are stupidly strict on lending.

Banks are weighing up risk as well, so as a single person on £40k for example you would be able to borrow less than a couple on £20k each, because the risk is higher that you will lose your whole income (illness, redundancy etc is more likely to happen to one person than it is to 2, and if you have a joint mortgage you’re jointly liable)

Lenders use various stress and sensitivity tests against your finances to see if you can cope with future changes and unexpected bills.
Typically eg:
3% allowance in case interest rates go up. This could mean a few hundred quid a month is set aside in the figures for a hypothetical rises in mortgage payments.

Debt servicing ratio is where they test the percentage of your net pay being used for ALL DEBT including mortgage payment. ( ie car payment, loans, credit card min payment). Usually this is assessed at max of 30 - 40% of your take home pay. So if you have other debt your borrowing power for this test is reduced

If you have benefit income or rental income they may discount a percentage of it to allow for fluctuations in entitlement or voids.

Then when they have done all of that they usually like to still have a percentage of your net income left over for other bills that don’t feature every month, that can’t be predicted and might not be included in your budget eg washing machine breaks down, tyres need changed etc. Some lenders like you to be left with 2-5% left over.

It is true that the FCA recommend lenders don’t exceed 4.5 times gross salary but most lenders nowadays prefer it to be a bit less eg 3.8 times . If higher than 4.5 times they need to document a good reason why they are doing it eg expecting sudden income rises in near future.

So you can see that whilst clients often think they can afford more based on their experiences of renting or saving it’s not how the lender will be looking at it.

can you get a resale shared ownership IF you are in London they have a website which includes both new & resale. Often resale are cheaper. Have you looked in nearby areas which might be a bit cheaper?