Questions of Cash: The homes say affordable but I still can't get a mortgage
Saturday 16 August 2014
Q. I am trying to purchase a Section 106 low-cost home. To qualify for the scheme, you must be a local resident and earn less than £30,000 a year. The property is priced at £136,500, so the 10 per cent deposit is £13,650, leaving a mortgage of £122,850. As a paramedic I fit the requirements and have the deposit.
A mortgage adviser told me only four lenders could provide mortgages on Section 106 homes. I spoke with the Halifax, the biggest of these, which said it was over-exposed and could not advance any more mortgages on that development. The adviser said the other lenders are too small to provide a mortgage of £122,850, which means I would need a deposit of between £30,000 and £40,000, defeating the object of the scheme. Can you suggest an alternative? MB, Birmingham.
A. Under Section 106 of the Town and Country Planning Act 1990, developers can be required to provide some homes within a large development as affordable homes, but these are subject to restrictions on resale. As Ray Boulger at the mortgage broker John Charcol said, this makes them less attractive to lenders – although the Halifax, Nationwide and some of the smaller building societies do accept such applications.
Mr Boulger has made investigations and discussed your situation with both the developer and the Halifax. While the Halifax is at, or near, its normal limit of exposure to lending on that particular development, it has agreed as an exceptional measure to consider a mortgage. However, this depends on a property now becoming available, as the developer has agreed to sell your preferred home to another buyer because of the delay in obtaining a loan.
Mr Boulger also spoke to the Stafford Railway building society and Nationwide, which are both willing to consider applications from you.
From owning to renting and investing the money
Q. I shall be selling my house soon and moving into a rented flat. I expect to receive about £200,000 from the sale. What is the best way for me to save this money? I want a safe haven and enough return so that it gets passed on to my children uneroded. I don't expect to use any of it. I am a member of Dignitas, so I hope to avoid care costs. I have put my existing savings into two three-year savings accounts. BP, West Midlands.
A. Philippa Gee, managing director of Philippa Gee Wealth Management, said: "You are not on your own in taking the approach of selling up and renting. However, the important question is how long you plan to retain the rented accommodation. For example, do you imagine you will buy another property in the future, or do you have other plans in mind? This is important because it will have a big impact on what might be appropriate as an investment.
The other issue is whether you need an income from the proceeds to pay the rent and other expenses, or instead are you simply wanting to protect the capital value for your beneficiaries?
If you are looking to move the money into another property or venture in due course, the option of taking any risk with the investment starts to look very unlikely, as you will need to know that the full amount is available at the time it is needed – and not exposed to an asset class that could suffer from a fall in value at just the wrong time.
If "no risk" is the requirement and the timeframe is fairly short, cash may be the only option. What you need to do is find the best interest rate possible and perhaps make use of Isa allowances.
If instead you are looking to retain the investments for the long term, you can start building in risk. However, the amount and the most suitable place depend on just how much risk you can tolerate, your ethical considerations and future requirements for the capital. It may prove better, given current market conditions, to phase the money in over time, though again this may not suit your plans."
The website moneyfacts.co.uk provides details of savings accounts, Isas and short-term bonds offering the highest interest rates.
Questions of Cash cannot give individual advice. But we’ll do our best to help if you have a financial dilemma. Email us at: firstname.lastname@example.org
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