How to get a mortgage on benefits

Can you get a mortgage if you are on benefits?

Securing a mortgage while on benefits can be a daunting task, as many lenders may view those who receive such support as higher risk borrowers. However, obtaining a mortgage is not impossible for individuals in this situation. In this article, we will explore the options available for people on benefits seeking a mortgage, as well as the factors lenders consider when making their decision.

How does a mortgage on benefits work?

A mortgage on benefits works similarly to a traditional mortgage, with the main difference being that some or all of the borrower’s income comes from government benefits. When applying for a mortgage, the lender will assess the applicant’s income, credit history, and other financial circumstances to determine their ability to repay the loan.

Here’s a brief overview of how a mortgage on benefits works:

Assessing income: Lenders will evaluate your total income, which may include a combination of benefits such as Disability Living Allowance (DLA), Personal Independence Payment (PIP), Universal Credit, and other acceptable benefits, along with any additional income you may have from employment or other sources.

Income multiples: Lenders typically determine the maximum mortgage amount based on a multiple of your annual income, which can range from 4 to 4.5 times your total income. For applicants on benefits, the income calculation may include a combination of benefit payments and other income sources.

Affordability assessment: Lenders will also assess your ability to repay the mortgage based on your financial circumstances, including your credit history, outstanding debts, and living expenses. They will ensure that the mortgage payments are affordable and within your budget.
Mortgage product selection: As with any mortgage application, you’ll need to choose a mortgage product that aligns with your financial situation and preferences. This could include fixed-rate, variable-rate, or tracker mortgages, among others.

Application process: You’ll need to provide documentation to support your application, such as proof of your benefits, bank statements, credit reports, and identification. Lenders may also require additional evidence of a stable history of receiving these benefits.

Mortgage approval: If your application is successful, the lender will approve the mortgage, and you’ll proceed with the property purchase process.

It’s important to note that not all mortgage lenders accept benefits as a source of income, so you may need to search for lenders who are more flexible in their criteria. Working with a mortgage broker experienced in helping clients on benefits can increase your chances of securing a mortgage, as they can help you navigate the process, identify suitable lenders, and provide valuable advice on improving your financial profile.

Can you get a mortgage if you are on benefits?

Navigating the mortgage application process while receiving benefits can be challenging. However, it’s still possible to obtain a mortgage with the right approach and preparation. Here are different scenarios involving employment status, unemployment, and low income while claiming benefits.

Employed and Claiming Benefits

If you are employed and also receiving benefits, your chances of getting a mortgage may be higher compared to being solely reliant on benefits. In this case, mortgage lenders will consider your total income, which includes both your salary from employment and the benefits you receive. Having a stable job and a consistent income stream can make you a more attractive borrower.

To increase your chances of getting a mortgage, ensure you have a good credit score, minimise outstanding debts, and save for a larger deposit. Research lenders who are open to considering benefit income and consult a mortgage broker to help you find suitable mortgage products.

Unemployed and Claiming Benefits

Obtaining a mortgage while unemployed and claiming benefits can be more challenging, as lenders often view unemployment as a risk factor. However, it’s not impossible. Some lenders may still consider your application if your benefit income is stable and meets their affordability criteria.

The key to obtaining a mortgage in this scenario is to research lenders who are more flexible with their income requirements and work with a mortgage broker experienced in helping clients on benefits. Additionally, improving your credit score, reducing your debt-to-income ratio, and saving for a larger deposit can increase your chances of securing a mortgage.

Low Income and Claiming Benefits

If you have a low income and are claiming benefits, mortgage lenders will assess your affordability based on your combined income sources. It’s crucial to find a mortgage product and property that fit within your budget and won’t strain your finances.In all scenarios, it’s essential to maintain a healthy financial profile and work with a mortgage broker who understands the unique challenges faced by applicants on benefits. By doing so, you can increase your chances of securing a mortgage that aligns with your financial situation.

What types of benefits are acceptable for mortgages?

In the UK, mortgage lenders have varying criteria when considering benefits as acceptable sources of income. It’s important to check each lender’s specific requirements and consult a mortgage broker to help find a suitable lender.

Here are some types of benefits that may be considered acceptable by some mortgage lenders in the UK:

Disability Living Allowance (DLA) or Personal Independence Payment (PIP): These benefits are designed to help individuals with disabilities or long-term health conditions. Some mortgage lenders may consider DLA or PIP as stable income sources.

Child Tax Credit: This benefit is provided to families with children, and some mortgage lenders may take it into account as a source of income when assessing an applicant’s eligibility.

Universal Credit: This benefit combines several means-tested benefits into one payment. Some lenders may consider Universal Credit as income, but they may require a stable history of receiving these payments and may only accept a portion of the total amount.

Pension Credits: Pension credits are additional payments made to retirees with low incomes. Some mortgage lenders may include these payments as part of an applicant’s income when determining mortgage eligibility.

Employment and Support Allowance (ESA): This benefit is designed to help those who are unable to work due to illness or disability. Some lenders may consider ESA as a source of income, depending on the specific type of ESA received and the stability of the payments.

Carer’s Allowance: This benefit is provided to individuals who care for someone with substantial care needs. Some mortgage lenders may view Carer’s Allowance as a valid income source.

Child Benefit: This benefit is paid to parents or guardians of children under the age of 16, or under 20 if they are in approved education or training. Some lenders may consider child benefits as part of an applicant’s income.

Remember that not all mortgage lenders will accept these benefits as income sources, and they may have specific requirements to consider them. Working with a mortgage broker can help you navigate the process and find lenders more likely to consider your benefits as a valid income source for a mortgage application.

What’s the maximum amount you can borrow?

If you are on benefits and seeking a mortgage, the maximum amount you can borrow will depend on a combination of factors, including your total income (from both benefits and other sources), credit history, outstanding debts, and the lender’s specific criteria.

Lenders usually determine the maximum mortgage amount based on a multiple of your annual income. For applicants on benefits, this income may include a combination of the benefits you receive, along with any additional income you may have from employment or other sources. Typically, lenders may offer mortgages up to 4 to 4.5 times your total annual income. However, this multiplier can vary depending on the lender’s policies and your individual circumstances.

Some lenders might offer higher or lower multipliers, but it’s essential to ensure that the mortgage amount is affordable and within your budget. To maximise the amount you can borrow, consider working with a mortgage broker who specialises in helping clients on benefits.

They can help you identify suitable lenders and mortgage products that align with your financial situation and advise you on improving your financial profile to increase your chances of securing a mortgage.

Are there government schemes to help people on benefits?

While there are no specific government schemes in the UK designed exclusively to help people on benefits get a mortgage, there are several schemes that aim to assist first-time buyers and those with low incomes in purchasing a home. These schemes might be helpful for individuals on benefits, depending on their specific circumstances.

Some of the government schemes include:

Help to Build: People in England who want to build or self-build their own home can get a loan from the government called “Help to Build.” Even if you only have a small deposit, Help to Build can make it possible for you to build your own home.

Shared Ownership: This scheme allows you to purchase a share of a property (between 25% and 75%) and pay rent on the remaining share, which is owned by a housing association. You can gradually increase your share over time through a process called “staircasing.” Shared ownership is available to first-time buyers, those who have previously owned a home but cannot afford to buy one now, and existing shared owners looking to move.

Lifetime ISA: A Lifetime ISA is a savings account designed to help people aged 18-39 save for their first home or retirement. The government provides a 25% bonus on your savings, up to £1,000 per year. You can save up to £4,000 per year in a Lifetime ISA and use the funds to purchase a home worth up to £450,000.

Right to Buy and Right to Acquire: These schemes enable eligible council and housing association tenants to purchase their homes at a discounted price. The discount depends on the property type and the length of time you have been a public sector tenant.

While these schemes are not specifically tailored for people on benefits, they may offer assistance for those who qualify based on their specific circumstances. It is essential to research each scheme’s eligibility criteria and consult a mortgage broker or financial advisor to determine the most suitable option for your situation.

How do benefits affect a mortgage application?

Benefits can have an impact on a mortgage application in various ways. While some lenders may view benefits as a stable source of income, others might perceive them as less reliable compared to income from employment.

Here’s how benefits can affect a mortgage application:

Income Assessment: When applying for a mortgage, lenders will assess your total income, which may include benefits like Disability Living Allowance (DLA), Personal Independence Payment (PIP), Universal Credit, or other acceptable benefits. The inclusion of these benefits in your income calculation can potentially improve your borrowing capacity.

Limited Lender Options: Not all mortgage lenders accept benefits as a valid source of income. This may limit your options and make it more challenging to find a suitable lender. You may need to research and work with a mortgage broker to identify lenders that are more flexible in their criteria and consider benefit income.

Affordability Concerns: Lenders assess your ability to repay the mortgage based on your financial circumstances, including your income sources. If you rely solely or primarily on benefits, lenders may view you as a higher-risk borrower. This could lead to lower borrowing amounts, higher interest rates, or even declined applications.

Benefit Stability: Lenders prefer stable and predictable income sources. Benefits can be subject to changes in government policy or personal circumstances, which may raise concerns about the stability of your income. Providing evidence of a consistent history of receiving benefits may help alleviate some of these concerns.

To improve your chances of securing a mortgage while receiving benefits, focus on enhancing your financial profile by maintaining a good credit score, reducing your debt-to-income ratio, and saving for a larger deposit. Additionally, working with a mortgage broker experienced in helping clients on benefits can help you navigate the process and find a suitable mortgage product.

Can I get a mortgage on disability benefits?

Yes, it is possible to get a mortgage while receiving disability benefits. Mortgage lenders assess your ability to repay the loan based on your income, credit history, and other financial circumstances. If you receive disability benefits as a stable source of income, some lenders may consider this income when evaluating your mortgage application. Disability benefits, such as Disability Living Allowance (DLA) or Personal Independence Payment (PIP), can be included as part of your overall income.

However, not all lenders accept disability benefits as a valid income source, so you may need to research and work with a mortgage broker to identify lenders that are more flexible in their criteria and consider disability benefit income.

Home Ownership for People with Long-term Disabilities (HOLD)

Home Ownership for People with Long-term Disabilities (HOLD) is a scheme in the UK that aims to help individuals with long-term disabilities purchase a home that suits their specific needs.

The scheme is part of the broader government-backed Shared Ownership initiative, which allows eligible individuals to purchase a share of a property and pay rent on the remaining share.

HOLD is designed to assist individuals who have a long-term disability and cannot find a suitable property through the standard Shared Ownership scheme. Under the HOLD scheme, individuals can purchase a share of a property that has been specifically adapted or is located in an area that caters to their unique requirements.

Key features of the HOLD scheme include:

Accessibility: The scheme focuses on providing properties that are tailored to the needs of people with long-term disabilities, ensuring that they can live comfortably and independently.

Affordability: HOLD allows individuals to buy a share of a property (usually between 10% and 75%) and pay rent on the remaining share, making homeownership more accessible and affordable.

Flexibility: Over time, individuals can purchase additional shares of the property (known as “staircasing”) until they own it outright. This allows homeowners to increase their ownership stake at a pace that suits their financial situation.

Resale: If a homeowner decides to sell their share of the property, the housing association has the first right to buy it back. If the housing association cannot find a buyer, the homeowner can then sell the property on the open market.

To be eligible for the HOLD scheme, applicants must:

  • Have a long-term disability that makes it difficult to find a suitable property through the standard Shared Ownership scheme.
  • Meet the general eligibility criteria for Shared Ownership, which includes being a first-time buyer or a previous homeowner who cannot afford to buy a property outright.
  • Demonstrate that they can afford the mortgage, rent, and other associated costs of homeownership.
  • Your gross annual household income is £80,000 or less outside London, or £90,000 or less in London.

If you are interested in the HOLD scheme, it’s essential to research your options, consult with a financial advisor or mortgage broker, and contact your local housing association for more information on available properties and the application process.

Can I get a mortgage on Jobseeker’s Allowance?

Getting a mortgage while receiving Jobseeker’s Allowance (JSA) can be challenging, as many lenders view JSA as a temporary and unstable source of income. Most mortgage lenders prefer applicants with stable employment and consistent income sources, as it reduces the perceived risk associated with lending.

However, it’s not entirely impossible to get a mortgage while on JSA. Some specialist lenders or smaller building societies might be more flexible in their criteria and consider your application. The key is to research your options, consult a mortgage broker experienced in helping clients on benefits, and focus on improving your overall financial profile.

What if I receive child benefits?

If you receive Child Benefit, some mortgage lenders may consider it as part of your overall income when assessing your mortgage application. Including Child Benefit in your income calculation can potentially increase your borrowing capacity, making it easier to secure a mortgage.

Having said that, not all lenders treat Child Benefit the same way, and some may not consider it at all. The extent to which Child Benefit is factored into your application may also depend on the age of your children, as lenders may be hesitant to rely on an income source that could decrease or disappear in a few years.

Can I get a mortgage with Universal Credit?

It is possible to get a mortgage while receiving Universal Credit, but it can be more challenging compared to applicants with a stable employment income. Some mortgage lenders may consider Universal Credit as part of your overall income when assessing your application, potentially increasing your borrowing capacity.

However, not all lenders accept Universal Credit as a valid source of income, and those that do may have specific criteria or limitations. As Universal Credit is a means-tested benefit, it can be viewed as a less stable income source compared to regular employment income.

My only income is from Universal Credit. Can I get a mortgage?

Getting a mortgage with only Universal Credit as your income source can be more difficult, and you may face limited options and stricter lending criteria. Consulting with a mortgage broker who understands the unique circumstances faced by applicants on benefits can help you navigate the process and find a suitable mortgage product.

Can I get a mortgage on benefits with bad credit?

Mortgage lenders typically prefer applicants with stable income sources and good credit scores, as this combination reduces the perceived risk associated with lending. If you’re on benefits and have a poor credit history, you’ll need to work harder to find a lender willing to consider your application. A mortgage broker experienced in helping clients with poor credit and benefits can guide you through the process and identify suitable lenders. They can also advise you on the best course of action to improve your financial situation and increase your chances of approval.

What to do if you have gone onto benefits while you already have a mortgage

If you find yourself going onto benefits while you already have a mortgage, it’s essential to take proactive steps to manage your financial situation and protect your home.

Here are some actions you can take:

Inform your lender: Contact your mortgage lender as soon as possible to inform them about your change in circumstances. Lenders often have procedures in place to assist borrowers facing financial difficulties, and they may offer temporary solutions such as payment holidays, reduced payments, or switching to interest-only payments.

Review your budget: Assess your new financial situation and create a revised budget, taking into account your reduced income from benefits. Prioritise essential expenses, such as your mortgage payments and utility bills, and look for ways to reduce non-essential spending.

Seek assistance: Check if you are eligible for any additional benefits or government support that can help with your mortgage payments. In the UK, Support for Mortgage Interest (SMI) is a government scheme that offers financial assistance to homeowners receiving certain benefits. SMI is provided as a loan and helps cover the interest on your mortgage.

Reach out for advice: Contact a debt or financial advisor, such as Citizens Advice or StepChange, to discuss your situation and receive guidance on managing your finances and mortgage payments. They can offer practical advice and help you explore potential solutions.

Consider downsizing or renting out a room: If your mortgage payments become unmanageable, you may want to consider downsizing to a more affordable property or renting out a room in your home (subject to your lender’s approval) to generate additional income.

Stay proactive: Monitor your financial situation closely and maintain regular communication with your lender, updating them on any changes in your circumstances. If you foresee any difficulties making your mortgage payments, reach out to your lender immediately to discuss potential solutions.

Remember, the key is to be proactive in managing your finances and communicating with your lender. By exploring available support options and seeking professional advice, you can navigate your new financial situation and work towards maintaining your mortgage payments.

Which lenders accept benefit income in the UK?

There are various mortgage lenders in the UK that may consider benefit income when assessing mortgage applications. However, each lender has its own criteria, and some are more willing to accept benefit income than others. It’s essential to research and consult a mortgage broker to find suitable lenders for your specific situation.

While we cannot provide an exhaustive list of lenders, some that have been known to consider benefit income include:

  • Halifax
  • Nationwide
  • Building Society
  • The Co-operative Bank
  • Santander
  • Barclays
  • NatWest
  • Virgin Money
  • Aldermore Bank
  • Precise Mortgages
  • Kensington Mortgages

Please note that lender policies may change over time, and the acceptance of benefit income can vary depending on the individual’s circumstances and the specific benefits received. It’s crucial to consult a mortgage broker or directly contact the lenders to confirm their current policies regarding benefit income. A mortgage broker can help you navigate the process, identify suitable lenders, and find a mortgage product that fits your unique financial situation. They can also offer valuable advice on improving your financial profile to increase your chances of securing a mortgage.

Can I get a buy-to-let mortgage on benefits?

Most buy-to-let mortgage lenders prefer applicants with stable employment income and a good credit history, as this reduces the perceived risk associated with lending. That said, it’s not entirely impossible to get a buy-to-let mortgage while on benefits. Some specialist lenders or smaller building societies may be more flexible in their criteria and consider your application.

The key is to research your options, consult a mortgage broker experienced in helping clients on benefits, and focus on improving your overall financial profile to get a buy-to-let mortgage. 

How to get a mortgage on benefits:

Getting a mortgage while on benefits can be challenging, but it is possible with the right approach and preparation.

Here are some steps you can follow to increase your chances of obtaining a mortgage while on benefits in the UK:

Determine your eligibility: First, find out which benefits are considered acceptable income sources by mortgage lenders. As mentioned earlier, benefits such as DLA, PIP, Child Tax Credit, Universal Credit, Pension Credits, ESA, Carer’s Allowance, and Child Benefit may be considered by some lenders.

Research lenders: Not all mortgage lenders will accept benefits as income sources, so it’s essential to research and find lenders that are open to considering your benefits as part of your income. Specialist lenders or building societies may be more likely to accommodate applicants with unique financial circumstances.

Consult a mortgage broker: A mortgage broker with experience in helping clients on benefits can guide you through the process, suggest suitable mortgage products, and help you find a lender more likely to accept your application.

Gather documentation: Collect all necessary documents to support your application, including proof of your benefits, bank statements, credit reports, and identification. Lenders may require additional evidence of a stable history of receiving these benefits.

Improve your financial profile: Take steps to improve your credit score, reduce your debt-to-income ratio, and save for a larger deposit. These actions will make you a more attractive borrower to mortgage lenders.Consider a guarantor: If you have a family member or close friend willing to act as a guarantor for your mortgage, this can increase your chances of securing a mortgage, as the guarantor provides extra security to the lender.

Be realistic about your budget: Calculate how much you can afford to borrow based on your combined income from benefits and any other sources. This will help you find a suitable mortgage product that fits within your budget.

Apply for a mortgage: Once you have identified a suitable lender and mortgage product, submit your application with all the required documentation. Be prepared to answer any questions the lender may have about your benefits and financial situation.

Stay patient and persistent: The mortgage application process can be lengthy, especially for those on benefits. Stay patient and be prepared to face possible rejections. If your application is denied, seek feedback and continue to explore other options. Remember, securing a mortgage while on benefits can be difficult, but with careful planning, research, and the guidance of a mortgage broker, you can increase your chances of success.

While obtaining a mortgage while on benefits can be challenging, it is not impossible. By understanding the types of benefits that may be considered as income sources, approaching specialist lenders, and implementing strategies to improve your financial profile, you can increase your chances of securing a mortgage. Consulting with a mortgage broker can provide valuable insights and guidance to help you navigate the mortgage process.

How can I get mortgage advice for benefits?

To get mortgage advice specifically tailored for individuals on benefits, consider the following steps:

Consult a mortgage adviser: Seek the assistance of a mortgage broker who has experience working with clients on benefits. They can help you identify suitable lenders, navigate the application process, and provide valuable advice based on your unique financial situation.

Independent financial adviser: Contact an independent financial adviser (IFA) who can provide personalised guidance on mortgages and other financial products. Make sure to choose an IFA who has experience working with clients on benefits to ensure they understand your specific circumstances.

Visit a local Citizens Advice Bureau: The Citizens Advice Bureau (CAB) offers free, impartial, and confidential advice on various topics, including mortgages and benefits. Visit your local CAB office or their website to access resources and information tailored to your needs.

Government resources: Visit the official government websites and resources for benefits and housing advice. They often provide comprehensive guides and tools to help you understand your options and eligibility for various schemes and support.

Housing associations and charities: Some housing associations and charities may offer mortgage advice and support for individuals on benefits. Reach out to these organisations in your area to inquire about their services and resources.

When seeking mortgage advice for benefits, it’s essential to consult with mortgage advisers who have experience working with clients in similar circumstances. This ensures that they understand the unique challenges and opportunities associated with obtaining a mortgage while receiving benefits, and can provide the most accurate and helpful advice tailored to your needs.

Related articles:

What is a guarantor mortgage?

Can I still get a mortgage if I have bad credit?

What credit score do you need for a mortgage?


 

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