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Shared Ownership Affordability Guidance Update

On the 17th May, Homes England (HE) updated section 6, headed Affordability Guidance in the Shared Ownership chapter of the Capital Funding Guide (CFG). The new guidance comes into effect on 1st August 2024.

The CFG contains the rules and procedures for all providers (referred to as ‘Investment Partners’) delivering grant funded affordable housing, e.g. Housing Associations.

Section 6 in this chapter explains HE’s expectations and requirements concerning applicant affordability, the financial assessment process to arrive at the share they can afford to purchase, and the role of the provider and mortgage adviser in making this decision.

This update will therefore be of interest to intermediaries who advise on Shared Ownership mortgages. 

The updated guidance makes some important changes:

  • The Homes England’s affordability calculator will be withdrawn on 31 July 2024, along with its advisory guidance regarding the minimum 25% and maximum 45% net mortgageable household income thresholds.
  • Advisers will determine the suitable proportion or amount of an applicant’s income that can be spent on housing costs.
  • More transparency by providers publishing their first come, first served policy (a requirement) and other policies that they may have.
  • Introduction of a new affordability methodology which more closely aligns with mortgage lender methodology.
  • The use of an adviser sign-off sheet and provision of a budget planner to confirm affordability and evidence the outcome.

To allow providers time to prepare for these changes and be compliant the updated guidance will go live after 31 July 2024. Before this date HE will continue engaging with providers and other stakeholders such as mortgage intermediaries.

The new HE guidance and removal of the calculator makes the process more complicated for intermediary firms who wish to advise on Shared Ownership. However, following our meeting with HE, we understand that this was an intentional bid to raise standards and prevent firms from entering lightly into this complex area of the market.

Firms who wish to advise on Shared Ownership will be required to develop in-house processes and policies, and rely less on standard procedures and calculator outputs. AMI will continue to liaise with HE to understand how the guidance is being followed in practice, and we can feed back any insights gained or issues encountered as needed.

We are also awaiting confirmation from the FCA that the affordability assessment an intermediary firm carries out to enable the Housing Association to determine initial eligibility does not count as ‘ancillary advice’ and is therefore outside the scope of FCA regulation. We will update members upon receiving a response.

To allow providers time to prepare for these changes and be compliant the updated guidance will go live on 1st August 2024. Before this date HE will continue engaging with providers and other stakeholders such as mortgage intermediaries.

The overarching principles in HE’s updated guidance have not altered and continue to feature:

  • The requirement that applicants are prioritised and dealt with on a first come, first served basis.
  • The applicant’s assessment should be provided free of any charge to them.
  • Shared ownership homes should be sold across a range of equity shares.
  • The provider must ensure that the share level being purchased is suitable for the applicant’s affordability, needs, and circumstances as determined by a regulated, qualified mortgage or financial adviser, and be able to evidence this.
  • Providers should follow the advice provided by the adviser in respect of all mortgage and financial matters. 

Intermediaries are encouraged to contact Homes England (or contact AMI and we can make contact on your behalf) if the RP is scrutinising the budget planner.

For any queries please contact info@a-m-i.org.uk.

© 2024 Association of Mortgage Intermediaries Limited.

AMI is the trading name of The Association of Mortgage Intermediaries Limited which is a company limited by guarantee, registered in England and Wales under the Companies Acts with number 7982341. Our registered address is Celixir House, Stratford Business & Technology Park, Innovation Way, Banbury Road, Stratford-upon-Avon, Warwickshire, CV37 7GZ.

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