Can I Get A Mortgage If I’m On Benefits?
The short answer is yes, you can secure a mortgage even if your income predominantly comes from benefits. The long answer is a landscape of eligibility criteria and lender considerations that can pave or block your path to homeownership.
Not all benefits are viewed equally by lenders, and not all lenders entertain the idea of a loan application from someone on benefits. It’s common for those on benefits, particularly more variable benefits, such as Universal Credit, to face additional hurdles.
Eligibility roadblocks
For instance, a mainstay in mortgage applications, steady income, can be a stumbling block for some benefit recipients, particularly those whose benefits fluctuate. In such cases, establishing a dependable payment history and a history of receiving the benefit may be essential.
The purchased property should also be suitable; lenders will question your ability to maintain and live in the property if it’s substantially above your needs or beyond what your benefits can comfortably contribute.
What benefits can count as income when applying?
Recognised benefits as income
- Universal Credit: Designed for individuals or families on a low income or out of work, Universal Credit is a monthly payment that can be considered by lenders, reflecting a consistent income source for mortgage applications.
- Pension Credit: Aimed at seniors, Pension Credit supplements retirement income, potentially boosting mortgage affordability for older applicants and showcasing their ability to manage regular mortgage repayments.
- Bereavement Support Payment: This benefit assists those who’ve lost a spouse or civil partner. Lenders consider it temporary financial support that can contribute to the overall income assessment in a mortgage application.
- Child Tax Credit: For families with children, this benefit provides extra financial support and can be included as part of your income by lenders, demonstrating additional means to support mortgage payments.
- Child Benefit: This regular payment to parents or guardians of children under 16 (or 20 if in education or training) can be considered income, highlighting a steady inflow supporting household expenses, including mortgage repayments.
- Carer’s Allowance: For individuals caring for someone for at least 35 hours a week, this allowance can be factored into income calculations, reflecting a commitment that doesn’t preclude the ability to manage a mortgage.
- Attendance Allowance: Aimed at those with a disability severe enough that they need someone to help look after them, this allowance is seen by lenders as stable income when applying for a mortgage.
- Disability Living Allowance (DLA): For disabled people and children or those under 65 when they first claimed, DLA supports physical and mental disability costs and can be recognised as part of income by mortgage lenders.
- Personal Independence Payment (PIP): Replacing DLA for adults, PIP helps with some extra costs associated with long-term health conditions or disability and is viewed as reliable income for mortgage purposes.
- Maternity Allowance: For pregnant women unable to qualify for Statutory Maternity Pay, this allowance supports them during the birth period and is considered by lenders to understand a borrower’s income structure.
- Employment and Support Allowance (ESA): Offering financial support for those unable to work due to illness or disability, ESA represents a steady income stream that can be included in mortgage affordability assessments.
Understanding which benefits lenders consider as income is the first step towards aligning your homeownership goals with financial reality.
How much can I borrow?
If you’re receiving benefits and are curious about your borrowing potential, it’s essential to note that each mortgage lender has distinct methods of assessing affordability. Thus, the sum you’re eligible to borrow will be directly influenced by which mortgage lender you select.
A variety of factors contribute to this decision. Primarily, your income, whether solely from benefits or in combination with employment earnings, will dictate the maximum amount you can borrow. Moreover, aspects such as your credit history and deposit size can also impact your borrowing capacity.
For instance, if your credit history could be better, you might still qualify for a mortgage. However, be prepared for potential higher interest rates. In such a scenario, the mortgage lender will analyse your capacity to handle these increased rates when assessing your affordability.
Speaking of deposits, a standard purchase typically requires at least 5-10% upfront. But, if you’re reliant on benefits, consider raising your deposit to around 20%. Doing so can increase your chances of mortgage approval. It signifies that you’re borrowing a lesser amount but investing more of your savings, making you less risky to the lender and enhancing your likelihood of mortgage acceptance.
However, keep in mind that not all mortgage lenders view benefits as supplementary income, and some might not accept it all. In such cases, if you cannot cover the monthly repayments for your desired amount, you might face a reduction in what you’re offered or even an outright rejection of your application.
What kinds of mortgages can I secure while receiving benefits?
While receiving benefits, you cannot access a spectrum of mortgage types, provided you satisfy the lender’s prerequisites. The range spans from repayment and fixed-rate through to interest-only and variable mortgages—even extending to buy-to-let mortgages!
Our devoted mortgage advisor will meticulously evaluate your case, ensuring your eligibility for a mortgage before you submit your application. Remember that only some mortgage types might be within your reach, but your mortgage advisor will enlighten you accordingly.
In certain instances, mortgage lenders might disregard a minimum income requirement for buy-to-let acquisitions. This implies you could secure a buy-to-let mortgage while receiving benefits.
However, your options might be constrained and face rigid lending stipulations.
Please note that the Financial Conduct Authority does not oversee some types of buy-to-let or commercial mortgages. This includes support for mortgage interest and accepting benefits for people with long-term disabilities.
What lender should I use if I’m on benefits?
Not all lenders are created equal when it comes to accommodating potential buyers on benefits. Specialist lenders are often more familiar with various benefit structures and may offer better terms than high-street banks.
Specialist lenders
They’re the unsung heroes of the mortgage world for many benefit recipients. Their underwriting criteria are frequently more flexible, and they assess applications individually, taking into account the nuances of benefit incomes.
High street lenders
While high-street lenders may offer options, their stringent affordability assessments and automated underwriting systems could reject benefit-based applications.
How do I get a mortgage while on benefits?
Apply strategic patience. Working with a mortgage broker could be your most efficient path forward. A broker experienced in benefit-based applications will already have relationships with lenders and understand their criteria.
The broker advantage
Brokers can connect you with lenders who are more likely to say ‘yes’, preparing your application to highlight the stability and value of your benefit income.
The application process
Have all your paperwork and necessary documentation in impeccable order. Ensure any partner contributing to the mortgage—financially or as a co-applicant—is also prepared with their employment and income history.
Are there any drawbacks?
Securing a mortgage on benefit income can have drawbacks. High interest rates are a possibility, reflecting the perception of risk attached to variable incomes. Higher deposit requirements are often levied to reduce the lender’s risk.
Future proofing
Anticipating changes in your benefits and income circumstances could help mitigate these drawbacks. A professional advisor might recommend a larger initial deposit or a shorter-term mortgage.
What if I have bad credit?
If your credit history could be better, it can compound the challenges of securing a mortgage while on benefits. However, not all is lost.
Seeking credit repair
Starting with a thorough review of your credit report and actively working to improve your score can make a significant difference. Paying bills on time, reducing existing debt, and avoiding new credit applications are sensible starting points.
Specialised bad credit mortgages
There are mortgages designed for those with adverse credit, and again, a specialist broker is an invaluable ally in finding these products and navigating the application process.
Recommended reads:
The role of a benefits mortgage broker
A benefits mortgage broker is a specialist advisor with knowledge of the benefits system and mortgage market. They can be particularly beneficial if you need help figuring out where to start or have a unique income situation.
Their expertise
Skilled in zeroing in on lenders most likely to accept your application, a benefits mortgage broker can give you the confidence to approach the market.
Choosing the right broker
Getting recommendations, checking qualifications, and scrutinising their experience with benefit-based clients will help you choose the right broker for your needs.
FAQs
Can I get a mortgage on universal credit?
Ans: It is possible to get a mortgage on Universal Credit, depending on the lender’s policies and your individual financial circumstances.
What should I do if my benefits don’t cover the mortgage payment?
Ans: Exploring ways to increase your income, such as part-time work or house sharing, and setting up a budget for essential expenses can help bridge this gap.
Can I get a mortgage on benefits if I have a bad credit score?
Ans: While it’s more challenging, specialised lenders and professional advice can assist in securing a mortgage with benefits, even with a less-than-ideal credit history.
What rights do I have as a borrower on benefits?
Ans: The same rights as any other mortgage borrower. You’re protected from discrimination and have the right to fair and reasonable lending practices.
Should I notify the lender I’m on benefits?
Ans: It’s essential. Full disclosure is crucial for a successful application.
Final Words
Navigating the mortgage market on benefits is a challenge that requires patience, preparation, and often professional guidance. With the right approach, owning your own home is within reach, regardless of your source of income. For those willing to put in the effort, the stability and pride that come with homeownership make the pursuit truly worthwhile.
