Surplus Income Policy
This policy applies to Homes England affordability guidance as detailed in the Capital Funding Guide (CFG) (published in October 2024) and will apply to all Shared Ownership home sold by City of York Council. It is published to ensure all prospective Customers are aware of our policy approach when purchasing a Shared Ownership home. The policy is to ensure any potential purchaser has a safety net of surplus income and is not putting themselves in financial risk by over-reaching in their purchase.
Policy statement
City of York Council works with specialist Shared Ownership financial advisors to qualify and financially assess each applicant prior to them purchasing a Shared Ownership home. While alternative advisors may offer alternative views on surplus income, we will only be informed by our approved financial advisors’ calculations. The minimum surplus income is the minimum amount of your gross income that a Customer should have remaining after outgoings. Surplus income will be calculated on a monthly basis.
Our minimum surplus income is set at 10%, this is inline with mortgage compliance affordability (Seb to confirm or not).
This has been determined having regard to the guidance in the CFG, and advice from a specialist shared ownership mortgage broker, who has confirmed the figure to be the industry standard. A local independent professional advisor also deems the percentage to be appropriate for the cost of living.
The Council does not specify a maximum surplus income, therefore applicants will be permitted to retain a level of savings for emergencies and for known foreseeable costs to avoid financial overcommitment. The purpose of a surplus income policy is to provide purchasers with protection from the adverse effects of housing payment increases, which may put them at financial risk.
Assessment
Your surplus income will be determined by a financial advisor through an affordability assessment. The advisor will summarise the outcome of the affordability assessment by providing City of York Council with:
- a budget Planner
- signed declaration form, from the applicant and financial advisor
- any additional explanatory notes
The Council will not override the recommendations of an advisor regarding the suitability of a mortgage. Furthermore, the Council will not require an applicant to take out a mortgage through a particular advisor, irrespective of whether they undertook the financial assessment. Applicant’s individual circumstances will be considered to prevent any applicant being disadvantaged.
Minimum Monthly Surplus Income Calculation
The CFG Affordability Guidance states that professional advisors should calculate an applicant’s monthly surplus income using the following methodology:
- (A) Gross income
- (B) Less gross deductions (tax, National Insurance, student loan, etc)
- (C) Less known commitments (loans, credit cards, childcare, etc)
- (D) Less housing costs of the Shared Ownership purchase (rent and service charges. A rent stress test over a 5-year period will also be applied)
- (E) (A – B – C – D) = (E) net income available to support a mortgage. The indicative mortgage payment as determined by the advisor should not exceed 30% of the net income. Note: This may only be exceeded in cases where the advisor feels that there is a justification for doing so and is able to demonstrate this in the budget planner.
If you have any questions about this policy please speak to City of York Council, email: sharedownership@york.gov.uk, or telephone: 01904 555020.