Paul fires up Tivoli Studios with his weekly Insights. Today, we have a topic languishing since the 1980 Housing Act – almost 45 years old. Yes, it’s Shared Ownership, and Paul explains and reminds you how it works since you’ll be seeing a fair few enquiries on this basis moving forward. Plus, his final episode in his MCOB series – this time MCOB 11 – Affordability. As always, Paul’s over at https://www.archercourses.com and if you want to get on his member list (it’s free), use this link: https://qrco.de/be0F0D
Well it’s a very good morning from him and it’s a very good morning from me welcome to my mortgage live stream I’m Paul Archer but you know that hope everybody’s well hope you’re all good and you’re enjoying your week weend don’t hope you didn’t forget to uh to to
Ping your your clocks backwards of course they fall in the fall don’t they that’s the American term Autumn so we got an extra hour in bed which is all very nice wasn’t it and a lot brighter in the mornings which is lovely as well or you could look at it negatively and
So we actually at 5:00 Paul it’s dark now which of course it probably is wherever you are especially with storm Kieran coming in later this week apparently got to button down the atches I think to to make sure you’re not affected by the storms and the floods
Which if you look at pictures of Jukes spry and the river 7 which which ch’s quite close to it looks like it’s all underwater again it’s just pretty pretty phenomenal weather hope everything’s good with you hope you’re enjoying your world in the mortgage World Financial Services world looking forward to maybe
Interest rates staying as they are later this week which will be nice so that this this froess of uh of of the swap Market will flow downwards and rates will settle down then we got the Autumn statement which might bring some good news in for for stamp Duty you never
Know do you the government are quite King election next year the housing market does tend to affect a lot of Industry it has a massive effect on GDP growth they might s stimulate It Be Nice wouldn’t that therefore I think we should be looking at things growing
Later this year early next year as well so take the opportunity this this quarter next quarter to develop yourself in some kind of way I’m doing um another exam actually I’m doing a long-term care exam myself I’m learning all about the long-term care sector you know all the
Different aspects of financing for your care Etc so I’m I’m picking up some new ideas on that myself I might introduce some products next year maybe work with some corporates delivering some training in that area that’ll be fun looking forward to that anyway today for you
I’ve got a couple of um couple of topics I want to look at mcob um 13 for you or mcob 11 get that right going take a look at that one for you and then we’re going to take a look at shared ownership which
I think’s got a little bit of a lease of life actually and I’ll share that with you get that share that with you a little bit later on so what I’m going to do that is head over to the big whiteboard and talk to you about um mcob
11 responsible lending so uh let me just head over there now for you so we can talk about mcob 11 responsible lending here we go mcob 11 now let’s just um flick the button so you can see me clearly over here mcob 11 has been around by the way since 2004
Which is almost 20 years ago long time that now in 2004 therefore they created the concept of responsible lending other words lenders need to be responsible how much they lend but it had a bit of a reboot so just put a few dates up there for you 2004 is when mcob was created
But it had a massive reboot in 2014 which was the mortgage market review came in and it kind of like like tightened up affordability massively odd that though isn’t about it we had affordability standards in 2004 but we had the financial crash in 2728 possibly caused by uh people borrowing more money
Than they should have done particularly in the US anyway what’s happened now what’s what’s going on well fact is we’ve got a number of rules now in mcob 11 and the whole point about responsible lending is that lenders must not um lend irresponsible responsibly and they need
To look at certain aspects of this so let’s just take a look at the main area really which is they they must be very careful as to what percentage they lend of somebody’s net disposable income ndi I love an acronym don’t you so they have to be careful how much they lend and
Typically they’ll they’ll look at finding out what somebody’s net disposable income is as you can see there and then they’re going to M work out how much maximum they can lend them as a monthly payment and typically for example they might look at 80% of the ndi now that gives you a
Monthly mortgage payment how do they work out that monthly mortgage payment well they work it out on what they call the stress rate the stress rate is usually about 3% more than the normal rate that the lender’s charging unless it’s a fixed rate for a long period and
They might use that rate instead the rules on stress rates by the way were relieved last year so it’s not an essential element now but some lenders still do have a stress rate now that’s a good thing because the stress rate allows the lender to work out somebody’s
Affordability based upon a higher rate of interest than they’re actually getting at the time and that kind of Justified people’s ability to be able to afford their mortgages in the last year as rates start to rise a lot of people are struggling I get that but a lot of
People are actually just moving their expending around they’re not having so many foreign holidays or meals out at the weekend and they’re using that money to to afford them new mortgage because it’s all about net disposable income and net disposable income by the way includes things like holidays and uh and
Fancy meal meals out in fancy restaurants okay so that’s the basis of it so how do they calculate net disposable income well the mcob 11 requires that they be responsible about this and what they um are supposed to do now and they do it through apps and
Technology is they want to work out first of all the person’s income and that that of course looks at different angles of income employed income self-employed income and we’re looking at a monthly income here if it’s employed it’s net of tax of course so that’s your monthly income that’s coming
In then they deduct from that so they take away from that the first thing is called committed expenditure now committed expenditure those things which nobody has a choice about such as personal loans or credit card payment or some other kind of committed expenditure that has to come off each
Month you can’t stop it it’s usually contracted you know you got a contract and then you take away essential spending NOW essential spending is a difficult one to actually categorize and I remember when 2014 came in I was working with one lender who went through this this laborious income and
Expenditure table with clients took about an hour and they worked out things like Nursery costs gym fees and they worked out the penny got rid of that now and what they now use is what they call the on data that’s the office of national statistics that’s the government’s data team imagine working
There all they do is data and what the on does it says to you what how much does it cost to run a house on a household so if you lived in north umberland for example and you had two children and you lived in a three-bedroom Terrace Victorian property
Um how much roughly would it cost cost you to run that property so all your bills and all your costs Etc that you would need to fund that and um you know different people in the house so works out food costs and everything so that will give you a figure essentially
Therefore what you end up with Once essential spending and basic spending has been taken into account quality of life spending is you end up with your net disposable income your ndi and it’s that that they then work out well they say that that that equals your monthly
Payment on your mortgage but we’ll go for 80% just to get a bit of a buffer and and they they work out your monthly payment on the mortgage based upon a stress rate now they do have an overriding maximum another acronym for you I’ll put this one in black over here
For you and we’ll squeeze this down here at the bottom called LTI going to give you lots of acronyms say that’s your um your income that’s your uh your your your your salary effectively long-term income so the LTA ratio means that less than or equal to
4.5 times that income so you can’t have a salary you can’t have a mortgage more than four and a half times your salaries where they’re coming into on that one um and that’s roughly about 15% of the mortgage book can be over that so that’s just a lender kind of maximum overall
Book that they’re lending so most of it is four and a half times income or less so your your your income ratio but they can have 15% of that um more if they wish to as well so that’s why they get these firsttime buyer deals doing five
Times income don’t they so there we have affordability and that’s been around now since 2014 and it’s pretty tough you know you have to have a decision in principle if you go to a lender they work it out on an app how much maximum you can afford it’s very difficult now
To work out exactly what people can afford based upon salary OB you got this overall maximum but it’s all based upon people’s affordability which it should be now there are some exceptions here we’ll put those over here for you some exceptions that you need to be aware of
Exceptions now the first exception to this uh affordability calculation are product transfers pts product transfers and what we’re saying there is if somebody’s transferring their fixed rate mortgage to another product and they’re not increasing their lending or taking out any other kind of um changes term extensions that sort of
Thing then they won’t do an affordability check which is why when everyone’s fixed rate mortgages are coming to an end many people are just pressing a button on the lender lender app and it just literally just converts their mortgage to a new fixed rate there’s no affordability interviews or
Anything any of that pava so that’s that’s that’s product transfers really um mortgage prisoners another one mortgage prisoners now this is an interesting bunch of people in a terrible situation actually mortgage prisoners from defunct it’s a good word isn’t it lenders so go back to the financial
Crash in 2008 I did a lot of work for Bradford and Bingley love that bank great great bunch of people and they went um they got bought by the government basically went bust didn’t they and the government bailed them out and they became a government lender
Northern Rock did the same and all the lending was transferred to another institution which was run by civil servants really a defunct lender they weren’t lending anymore but they ran a lot of mortgages for people now these people were in mortgages which were granted prior to the crash so I joke but
Anybody with a pulse could get a mortgage back then so many of them were holding on to mortgages that if they had to reapply they wouldn’t be able to afford it under the new rules so the FCA of course helped these people as much as they possibly could and if they were
Going to move to another type of scheme and maybe another lender they could allow that lender to override the affordability check on them whether they did or not it’s entirely up to them but that was mortgage prisoners there still a few people actually on some of these
Old loans on standard variable rates of hellishly high percentages you do feel for them actually because you know they took out a mortgage with a lender that was bought out by the government so that’s one to think about the other one are lifetime mortgages from Equity release mortgages so if if it’s an
Equity release mortgage and it’s a lifetime arrangement in other words there’s no interest payments needed then you don’t need to do an affordability assessment so that’s another exception to the rule really what comes into it um makes sense isn’t it although that’s all changing now with interest rates going
Northwards and staying northwards a lot of lenders now are looking at ways in which to encourage the elderly customers to make month payments to make a few payments just to sort of stop this mortgage increasing because now that lifetime mortgages are languishing around the sort of five six% Mark the
Mortgage will be doubling in in sort of you know 10 12 years so to prevent that from happening monthly payments can can reduce that that that potential thing happening so there is a talk about maybe looking at income and expenditure for some of the elderly clients looking how
Much income they’ve got what their expenditure is is doing if you like a net disposable income calculation to see if they can afford a few Bob to pay their mortgage pay may maybe pay the interest but as it stands the lifetime mortgage doesn’t require it that com
That’s mcob 11 I love mcob 11 it’s brilliant it’s been around for so many years but it was ignored I think for about five or six years it was to be honest about it because back then in 2004 five 67 lenders lent enormous sums of money
To people with very few checks you know you had non-status mortgages and self-certification mortgages what was that all about for crying out loud of course the crash happened and then the mortgage market review tightened it up dramatically and that’s where we find ourselves today hope that’s been useful
Bye well done okay so um that’s a nice little update for you on mcob 11 that pretty much ends our series on mobs just to you prove them brush them up Etc they’ve all gone on to the boot camp so if you’re interested in finding out more
About them and you want to learn about them and you’re doing your cmap 2 and cmap 3 we’ve got them all on our boot camp which you can uh View and enjoy let’s now head over to my second whiteboard this morning because I want to talk to you about something a bit
More interesting really or mob’s interesting don’t get me wrong of course is it it’s thoroughly exciting but it’s not really is it let’s get on something that is so let me pop straight across then to my my other whiteboard for you and see you over here want to talk about
Shared ownership schemes now shared ownership mortgages of course go with the shared ownership scheme and I’ve called this rebooted because I think we’re ready to reboot these things for the the third decade now some inventions that are made last forever don’t they think about things like the bicycle
Invented in the late 19th century been around for for donkeys years still going very strong the zipper is still going strong aerosol sprays were invented many decades ago and they’re still going strong as well shared ownership is another example of a brilliant invention that’s still going relatively strong but
Probably needs a bit of a reboot I mean bicycles have had a reboot with electric bikes haven’t they every On’s driving around electric bikes now we went for a walk on Sunday and across the common and people on bikes which is fine there a bridal way isn’t it all electric bikes
But anyway shared ownership was originally invented or created in the 1980s housing act so it’s been around as long as I’ve been a sort of a teenager really they been successful yes they have to a certain degree so let’s just brush up on some of the knowledge to
Make sure that we understand what a shared ownership scheme is the mortgage that goes with this is called a shared ownership mortgage now first of all a shared ownership property or scheme is a property or or block of flats built normally by a Housing Association or converted by a Housing Association and
Then given to people on their list that’s particularly important so you’ve got a list now the list and I’m not going to get political with this one are people that deserve it more than others these are people that can’t normally afford to buy their own house if they
Were to rent it would probably be on the private rental market so these people on their list get offered these properties they’re built really well I’ve I’ve worked for a number of housing associations and they’re very ethical people I mean strongly so and they build good quality houses not fancy Dancy
Properties but good quality properties in fact I was passing um over in Gloucester the other day a cycle along with sharpness canal and um I had to look at these properties which just a leaflet that they’ve introduced and these are out just along the sharpness canal and the Beautiful properties as
You can see overlooking the canal and the docks the docks has been renovated and these are built by Guinness holes Guinness homes is a Housing Association they’ve been around for over 100 years and um you can go on the website have a look inside they’re nice Flats don’t if
You can see the picture there of the inside let’s just put that there so you can see that can you see the beautiful Flats inside with a with a balcony overlooking the water you know they’re lovely properties but the whole point behind them is that when they’re built and
Given to people they’re not given obviously they’re they’re sold but a percentage of the property is sold to somebody so just look at a visual example for you here’s a picture of my my proper here I’ve got here a property worth £50,000 is a house and I’ve got
40% is going to be um sold to somebody so they’re going to buy that bit but the rest of it is then rented to or by the Housing Association at a fair rent so I did some details on this particular example for you and the rent on this one
Would be about £200 per month which you know is not a lot if you compare that with private rental figures now there is if it’s a a flat for example there is obviously a ground rent to pay there’s also a service charge so be careful of that one so if you had a
Add a service charge to that now that would cover things like the buildings Insurance uh the servicing of the property because you still renting more than half of the property aren’t you so there is a little bit of a charge there but it’s a fair fair charge it’s not um
Over the top at all now the great thing is you get to buy a small part of the property now because you’re buying a small part of the property you don’t need so much of a much of a mortgage if you think about it so this particular
Example I’ve got a 40% share which I’m buying now this means that that that that share you’re buying is for £60,000 there you let’s put it that in there so you can see that so you’re buying £60,000 of that property a 40% stake now you’ll need a mortgage on that but
You’ll only need a 5% deposit so squeeze that in there for you and the 5% deposit comes out at £3,000 which then requires a 95% mortgage um for £57,000 simple as that really obviously that’s a lot of money don’t get me wrong and you apply for a shared ownership mortgage from A lender
The mainstream lenders all do them Banks building societies so you get a good rate of interest on that one yes it’s 95% lending but it’s good lending as far as the lender is concerned and you pay your mortgage payment on that so I what whatever rate of interest you’ve been
Able to get would determine your monthly payment and that’s broadly how how it works it’s not much more complicator than that now as I mentioned to you the rent that you pay this one’s £200 a month is kind of subsidized in a way these housing associations are non
For-profit they don’t make profit they haven’t they’re not like Simon loans bis all these people they they have shareholders to pay don’t they so they need to make profits so there’s it’s all plowed back in in so you can see where the cost savings coming into its own
Isn’t it now you pay the service charge I mentioned that before and and you rent the rest of it now the good thing about it though is you can staircase that’s that’s the big phrase to use isn’t it staircase now staircasing means that you can buy further shares in the future now
The 1980 Housing Act pretty much bought in the concept of staircasing and this means that a few years down the line if you wish to you could say to the Housing Association look you know we’ve got more income now coming in we’d like to buy
The rest of the property or we’d like to buy another 30% share so they might buy a 30% share of that property take out another mortgage or a further Advance on their existing mortgage or remortgage the whole thing to make a lot of difference and buy another share pay a
Bigger mortgage of course but pay less rent and eventually if they want to they can end up buying the entire property which is um the ultimate aim for for most people okay couple of small things there um if people own a bit of the property
Or if they own all the property and it’s a big block for example the the the the block is it gets looked after in a different way my my parents bought their Council house back in the 80s different concept that I get that but literally overnight everybody else bought their
Council houses and the whole street just improved people you know built extensions they put Hedges out there they made the front look lovely it just gentrified the whole area whether you agree with that or not the politics it does make a difference when people own a bit of their property and staircasing
Gives people the ability to do it in stages as their life and their income changes um stamp Duty land tax worth mentioning comes up in the exam quite a bit really stamp duty of course is paid when you purchase properties above different limits it’s quite a healthy
Limit at the moment now with staircasing and with with with shared ownership you can opt for two two ways of paying the stamp duty if you wanted to you could you could apply to pay pay your stamp Duty on the whole value of the property
Or you can pay pay it on the share you’re buying but bear in mind that when you start staircasing and and you know your total share goes up you will at some point probably exceed the stamp Duty threshold you will pay it if you carry on staircasing now in this
Situation of course the 150 is below the current level so you probably opt for the full price here but if that house was worth 400 or 500,000 then you know you may want to not pay the stamp Duty up front you might just apply the stamp Duty on your share that you’re buying
Which will be below the threshold that’s something to think about as well stamp Duty the other thing is this list so selling the property is the other big issue here selling the property now we passed by some homes that we went for walk this weekend Shel and I we passed
By these um new Warden assisted properties built in chart for sale cuz I hit 60 last week I’m sure I’ve mentioned it a couple of times was a week before but anyway these Ward and assisted properties are only available to people over the age of 60 so I can
Buy one now if I want to but of course when you come to sell it you can only sell it to somebody over the age of 60 so you haven’t got an entire Market to put your house on the market for which will reduce the price likewise many of
These properties if you decide to sell and move on you have to sell it back to the Housing Association who then will give it to somebody on their list and that restricts things so you got to be a bit careful with that one look at the terms and conditions on that one itself
So where will shared ownership go in the future it’s been languishing around for the last few decades um you know you’re relying on people like Guinness homes for example to build these properties there’s um IAM near us there’s another Housing Association there who build properties but they don’t build that
Many because they haven’t got a lot of money there’s not a lot of government money selling around at the moment so I think what’s going to happen in the future is with the housing crisis that we have we’re going to get local authorities possibly to start building more properties with government money
It’s all like secured on property isn’t it but rather than give people the right to buy Council housing I think maybe they’ll build with the right to Shared ownership so people can buy bits of the property as they as they improve themselves maybe that’s a way of ending the housing crisis Global authorities
Building properties housing associations more government money the the the shared ownership right will come in allow people to buy properties maybe just maybe that’s a way to combat the uh the housing crisis hope so something to think about so there we have shared ownership rebooted for the third decade
Something for you as a mortgage brok to think about bye well done okay so that’s good one one thing but been watching the BBC 2 Series if you ever on the housing crisis quite interesting actually a little bit history of social housing rental housing as a mortgage adviser we do need to have
An understanding of a little bit of history of housing see what it’s going to go as well so you might want to nip onto I player and uh see if you can stream that one but don’t forget to buy your TV license sound like a BBC engineer
Doesn’t I because you must do that it’s a good series worth worth looking at as well a great book I bought at the weekend as well the history of housing in the UK fascinating read about post first war how housing became bought and sold by the local authorities and and
Now of course housing is very much in the private rental sector so it’s good good understanding about housing market which may take off next year be nice wouldn’t it if the chancer does something in the um Autumn statement we never know things could certainly pick up again with the election coming up you
Know if they can Inspire the housing market to go for it house house prices have kind of SLE dish wherever they’re going inflation of course is making them go down in real terms but most most mostly they’re staying as they are interest rates kind of stabilizing now
They ain’t going down but Le are stabilizing might bring more confidence for people to come in and start buying and selling homes because people need to buy and sell move on don’t they course do maybe a stamp Duty subsidy might actually help that going because people
Buy and sell homes it affects so much else in the economy removal companies make money estate agents make company tile companies sell more tiles Furniture shops get busy again don’t they everybody sort of feeds off of the housing market and if that brings a bit of good news sentiment election coming
Up that’s the sort of thing that may well happen you don’t know do you anyway enough of that I think it’s um time to to say our farewells because uh we’ve been talking a long enough so as always database get on there if you wish to
Remember you can email me or you can go on to our YouTube channel if you’re watching us on YouTube and get onto our database somehow going to our website just scan that in if you’re watching the video we’ve got our cmap 2 podcast starting in a week on Saturday so that’s
Something for you to look forward to as well hope that uh brings you value as well other than that I’m going to wish you all having a fantastic week remember to uh lock down on Wednesday Thursday storm kieran’s coming in so B down your atches and prepare for the big storm see
You next week Bye