That is not a big saving is it?
However, the discount is different for London:- regionally, the highest average price paid by purchasers using affordable housing schemes is in London (£323,148), while the lowest is in the North (£147,437).
Nevertheless, the average value of a London property sold in a scheme is 33% lower than the average London regional price (£482,579).
First-time buyers remain the biggest beneficiaries of Help to Buy housing schemes; accounting for 80% of purchases over the last year. This is significantly higher than the 46% of all mortgage financed home purchases made by first-time buyers over the same period.
The average price paid by first-time buyers using the Government schemes is now £150,361; this is 10% (£16,732) lower than the average price paid by FTBs (£167,093) for all housing.
Again not a big discount and the question becomes does a 10% discount make the house affordable.
However, not everyone is eligible for or wants the properties offered through Help to Buy so what happens to them? Well they have to do the best deal they can with the mortgages currently on offer.
Lets look at what constitutes the term affordable:_
- The amount of deposit. The first thing you have to find is the deposit and unless your family can help you have to save it. So for a £150,000 house the deposit can be between 20% (£30,000) for good mortgage deals and 10% for the lowest deposit (£15,000).
- The costs of the mortgage. The deposit and the cost of the mortgage trade off each other for a 10% deposit the rate currently (Jan 16) is 2.18% to 2.5%. But for a 20% deposit the rate drops to 1.44% to 1.65%. In Cash terms this means a 90% LTV costs £585pm and 80% LTV £477pm, a difference of £108 pm.
- Your salary and the % you spend on the mortgage. Mortgage providers are required by the regulator to ensure you can afford your mortgage and that still equates to not borrowing more than about 4x your income. So for a £135,000 mortgage (the mortgage for a 10% deposit) you will need to earn £33,750pa.
- To the Government affordable seems to mean not more than 30% of your income. So for this£150k house and a mortgage of 585pm we would need an annual income of £23,500pa.
Lets look at this another way:-
- So an average income family on £27,000 pa can get a mortgage of £108,000 which means the difference, £42,000, has to come from savings to be the deposit.
- This would mean the LTV is 72% so the deposit is 28%.
- The monthly cost would be £429 which is 20% of the income well inside the Government’s 30%
So the monthly cost is affordable but the deposit is not. Is that really affordable.
- The minimum deposit required from the Resident Partner £7,500.
- The mortgage of £67,500 costs £268pm
- The Non Resident partner payment, for the 50% you do not own, is £387pm
- The total cost pm for your Joint Equity home is £655pm
- This is 29% of the average income of £27,000.
So Joint Equity offers the £150,000 home that you chose for £7,500 deposit and £655pm.
The alternative to buying is renting and the average cost of renting a £150,000 house is now around £575.
That means a owning your own home through Joint Equity will cost you £2.60 more a day than renting and you have the security of your own home, no short term tenancy, the threat of termination, swinging rent rises, or over bearing landlords and agents.
And what is £2.60 a day?
Well its a cup of coffee, 3/4 of a pint of beer or 6 cigarettes – not a very high price is it really.
And don’t forget that £2.60 also means you own 50% of the house and will benefit from rises in value of the house.
So if the property rises in price by 6% per year you will earn £4,500 per year or £12.32 per day. Not a bad return for your £2.60 extra cost is it?
Brad Bamfield, CEO of Joint Equity, says “affordability is a combination of many things and the tragedy is that many of our Partners are turned down for a mortgage when the rent they are paying is similar to the mortgage costs. To me its affordable if the deposit is at an attainable level, the monthly costs are not too high a proportion of the income and the security is assured. Joint Equity delivers affordable homes.”