If you're receiving benefits such as Universal Credit, maintenance income, or PIP, you might be curious about how it impacts your chances of getting approved for a mortgage. Fortunately, there are UK lenders who consider benefits as part of your income when assessing mortgage applications. But what's the process for finding these lenders, and what if you also have a poor credit history?
Should I Buy a House or Rent if I Receive Benefits?
Opting for a mortgage over rental payments can offer various financial advantages. While the initial costs of securing a mortgage may seem daunting compared to renting, the long-term benefits are significant. Mortgage payments typically fall below rental payments, potentially reducing your monthly expenses while also allowing you to accumulate equity for future security.
Furthermore, as property values tend to appreciate over time, homeownership can serve as a means to grow wealth. This appreciation can provide additional equity if you choose to sell your property in the future. For those concerned about leaving a legacy for their loved ones, paying off a mortgage to build equity offers a tangible asset to pass on to children, siblings, or a spouse.
Unlike rental agreements where landlords may increase rent periodically, opting for a fixed-rate mortgage ensures consistent repayment amounts, providing stability and predictability in your financial planning.
Can you get a Mortgage While on Benefits?
In the UK, it's possible to secure a mortgage even while receiving benefits. Approval largely hinges on your overall financial capacity to repay the mortgage. If you have additional income sources such as employment or a pension, or if you possess assets like another property for collateral, you may find a lender willing to approve your application.
Certain lenders accept benefit income without requiring traditional employment income from borrowers. Their primary concern is the borrower's ability to meet mortgage repayments. Therefore, as long as you can demonstrate your capability to consistently cover your loan repayments, being on benefits shouldn't hinder your mortgage approval.
What Benefits Count as Income for a Mortgage?
The following benefits can be counted as income by many UK lenders. It's important to work with a specialist broker who understands the market and lenders who accept 100% benefit income or part income from benefits before making a formal application.
Attendance Allowance
Carers Allowance
Child Benefit
Disability Living Allowance (DLA)
Incapacity Benefit (IB)
Industrial Injuries Benefit (IIB)
Maternity Allowance
Pension Credit
Severe Disability Allowance
Widow's Pension
Universal Credit
How do you get a Mortgage While on Benefits?
To begin, you'll want to identify a lender whose criteria include considering income from benefits. Engaging a mortgage broker, who has access to a wide range of lenders, can streamline this process and save you time. Simply relying on a Google search for mortgage lenders has limitations, but delving into details such as eligibility criteria, interest rates, and early repayment fees can help you pinpoint suitable options and feasible paths to pursue.
Moreover, a mortgage broker can illuminate various affordable housing schemes and mortgage incentives that may be accessible to you. This guidance aims to make both your mortgage and the home purchase itself as cost-effective as possible.
Finding the Right Lender for a Mortgage if You Receive Benefits
However, upfront costs aren't the sole focus. A reputable mortgage broker scrutinizes contract terms and conditions, comparing them with those of other lenders to identify the most fitting arrangement tailored to your situation.
Certain mortgage agreements afford greater flexibility for overpayments, potentially yielding long-term savings. Conversely, others may boast a lower fixed interest rate but impose stricter terms, including higher early repayment or exit fees. Given the multitude of factors at play, thorough consideration is paramount. It's wise to peruse reviews and seek guidance from a seasoned broker experienced in securing mortgages for individuals with income from benefits.
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How Much Can I Borrow for a Mortgage that Accepts Income From Benefits
Typically, lenders assess your annual income by multiplying it by 4.49 or a higher figure, depending on their specific criteria and your individual situation. For instance, if your job income totals £14,000 annually and you receive an additional £2,000 from benefits, a lender might aggregate these figures and multiply them by 4.49. This calculation could suggest that you're eligible to borrow up to a maximum of £71,840 for a single person's mortgage.
If it is a joint application, both of your incomes will factor into the assessment. For instance, if your annual income totals £16,000 and your partner's hypothetical income is £18,000, together it amounts to £34,000. Multiplying this figure by 4.49 could potentially qualify you for a maximum loan of £152,660.
However, lenders also consider your existing debt, if any, along with other financial obligations when determining an affordable mortgage amount and terms. Additionally, your credit history and that of your partner will be scrutinised, as lower credit scores typically indicate a higher risk of loan default.
Can I get a Mortgage While on Benefits and with Bad Credit?
It's not an insurmountable challenge. Lenders vary in their assessment criteria, so what one perceives as severe bad credit, another might view as mild. While this diversity can be frustrating during your search, it's crucial not to hastily submit a mortgage application if you're uncertain about its acceptance due to adverse credit.
Though perusing mortgage criteria may seem laborious, glossing over them and hoping for the best can lead to rejection, which adversely affects your credit report. A credit rejection entry on your report could complicate future mortgage applications, as lenders may question why another institution declined your loan request.
Although a "good" credit score can broaden your options among mortgage lenders and possibly secure lower interest rates, having bad credit doesn't necessarily close all doors. With proper guidance, there may still be avenues to explore.
Admittedly, you might encounter slightly elevated interest rates due to being perceived as a higher-risk borrower with bad credit. However, if your credit setback transpired over six years ago and has since been resolved, more lenders might be inclined to extend loans to you. Nevertheless, factors such as your income, employment stability, and age can also influence mortgage approval decisions, particularly when seeking a mortgage while receiving benefits with a history of bad credit.
Can I get a Shared Ownership Mortgage on Benefits?
Absolutely, shared ownership is accessible to applicants receiving benefits. Even if a portion of your income relies on benefits, such as Universal Credit, you might still qualify to purchase a share in a home. Under shared ownership schemes, borrowers can acquire shares in a property while also paying rent for the portion they don’t own.
Should you choose to participate in this government initiative, you'll need to demonstrate sufficient affordability to cover mortgage repayments, rental payments, service charges, and utility costs. Receiving benefits shouldn't hinder your eligibility for a Shared Ownership mortgage. However, it's worth noting that not all lenders will consider the benefit income you receive when assessing your affordability.
Where can I Find and Compare Lenders that Accept Income from Benefits?
Consult a mortgage broker to identify lenders who accept benefit income. With their market access and relationships with UK lenders, they can sift through options, presenting you with a tailored list of suitable lenders.
Alternatively, it might be determined that your income, excluding benefits, adequately covers potential mortgage repayments. Gain clarity on your next steps by engaging with an expert online, over the phone, or in person if you can visit your chosen broker's office.
Key Takeaways
Obtaining a mortgage whilst on benefits is definitely more difficult as there are fewer lenders who would consider your application, however this does not mean it is impossible. Working with a mortgage broker who understands the market and knows which lenders consider the different benefits available in the UK as income is crucial and will increase your likelihood of being accepted.
