View more on these topics

Taking advantage of Flexishare

The introduction of Advantage’s Flexishare product could be a ground-breaking development. Although a number of lenders have redefined their affordability models in recent months, increasing the levels they are prepared to advance, most high street brands will not lend above 5 x income.

Some sub-prime lenders have also adopted affordability models and several of these offer higher levels of potential borrowing than mainstream brands, having moved up to levels of 5.5 x income and beyond.

Flexishare is designed to provide a solution for clients who have been unable to borrow sufficient funds from mainstream brands, but it does this responsibly by using a debt to income ratio calculator.

It effectively offers a proportion of borrowing at a subsidised rate compared with that which can be obtained in the wider market. This allows a typical client to borrow more than 6 x income, assuming a minimum 5% deposit.

With the average male income for full-time employees in 2004/05 being 25,100, according to the Office for National Statistics, and the average UK house price in the region of 176,000, according to the Halifax House Price Index, it is clear that a first-time buyer with a 5% (9,000) deposit will still require borrowing of 167,200.

To a client earning this typical income Flexishare will advance 152,879 over 25 years, 160,246 over 30 years and 165,300 over 35 years assuming no existing commitments. These borrowing levels equate to 6.09 x, 6.38 x and 6.94 x income.

This level of borrowing potential allows more would-be home owners to buy. The product also offers a fixed rate on an interest-only basis for the life of the loan at 2.99% for the element referred to as the residential ownership loan. The lender effectively provides this subsidy in return for a share of equity appreciation.

If our client was to purchase the average property today on the basis of taking the minimum 15% of purchase price on the ROL, they would be borrowing 140,800 on either the two or three-year conventional stepped fixed rate mortgage and 26,400 on the ROL with a 5% deposit.

Assuming house prices continue to rise at a modest 3% annually over the next five years, the property would have appreciated to 204,031. In the event of the property being sold at this time, Flexishare would be entitled to 15% of the equity appreciation – which in this case would equate to 4,204.

Should the buyer have carried out improvements to the property such as a loft extension adding 15,000 to the value, Advantage does not share in this element of equity appreciation. It is also important to note that in the event of the property falling in value the lender shares the downside.

In a market where prices are continuing to rise and many first-time buyers are unable to borrow sufficient funds from mainstream lenders to get on the property ladder, this product could allow many more would-be home owners to realise their aspirations of ownership in exchange for giving up a small element of future equity appreciation.

Brian Murphy, lending manager, Mortgage Advice Bureau


Multiples are a scandal-in-waiting

The papers are full of concern over the huge amount of outstanding unsecured personal debt in the UK. The base rate has edged up 0.25% and the Monetary Policy Committee is widely acknowledged to be ready to recommend raising the rate further. Property possessions are on the up and more people are failing to meet their financial liabilities.

Lenders must show rates like for like

How does the old poem go about keeping your head when all around you are losing theirs? Despite the rise in the base rate the equity release market stands apart from the mainstream and provides more great news for advisers after the recent rate cut by GE Life which saw its rate fall to 5.95% annual. Not bad for a rate fixed for life when the base rate is at 4.75%.

BM Solutions comes top in B2L

The Council of Mortgage Lenders has named BM Solutions as the top buy-to-let lender for the first half of 2006, measured by gross advances. BM Solutions beat Mortgage Express and the Paragon Group into second and third places respectively. Tim Hague, director at BM Solutions, says: “Our securing the top buy-to-let lending position is not […]

Kent Reliance to revamp IT system

Kent Reliance has appointed s2s to transform its IT and network infrastructure. The aim is to grow the company’s outsourced operations in India and allow it to increase the range of hosted network services it can offer.

Trouble ahead - thumbnail

Pensions: trouble ahead?

The pace of change in the pension’s space has been little short of astonishing, and has left thousands of employers struggling to keep their pension policy compliant, and also on the right side of current best practice and governance. Many employers, and indeed many in the pensions industry itself, would like to see a period of no change during the next term of government. This would give all sides a chance to catch up and draw breath. 


News and expert analysis straight to your inbox

Sign up