Getting a Mortgage on Benefits
Many people in the UK rely on benefits. If you're among them, you might be curious as to how this impacts your mortgage approval prospects. Fortunately, some UK lenders will accept benefits as part of your income when assessing mortgage applications. But what are the specific details you need to know?
In this article, we’ll discuss the influence of benefits on your ability to secure a mortgage while offering tips to enhance your chances of getting approved. We will go over:
Can you get a mortgage while employed and claiming benefits?
Can you get a mortgage while unemployed and claiming benefits?
Government schemes to help people on benefits get a mortgage
Can you get a mortgage on benefits?
Yes, it is possible to secure a mortgage even if you receive benefits. UK lenders are not allowed to discriminate based on the source of your income. As such, whether you have long-term disabilities or dependents to support, you have the same right to apply for a mortgage as anyone else.
That said, obtaining a mortgage on benefits can be more challenging than with a traditional income. This is mainly due to how lenders prioritise assessing the risk of your loan and your ability to make repayments. Meeting their lending criteria and demonstrating affordability are the key qualifiers.
How does getting a mortgage on benefits work?
Many mortgage providers limit how much of your benefit income they take into account with your affordability assessment. However, some lenders may consider applications where the majority of income comes from benefits, provided other criteria are met. Relatedly, if your income varies, affecting the benefits you receive, lenders are less likely to approve your application.
Stability and longevity of income are critical factors for lenders when assessing affordability. Followingly, benefits received for a permanent disability are seen as stable income. In contrast, those with a temporary illness who are expected to return to work may be viewed as a higher lending risk. Similarly, if your child benefits are nearing their end, lenders might exclude them from your income assessment.
What benefits can be used for a mortgage?
Many benefits can be factored into a mortgage assessment, but the crux is understanding which benefits are accepted by different lenders. Each lender has their own criteria, so even those willing to consider benefits as income may not accept every type.
The following benefits can be included as additional income when applying for a mortgage:
Attendance Allowance
Carer’s Allowance
Severe Disablement Allowance
Disability Living Allowance
Maternity Allowance
Child Benefit
Incapacity Benefit
Industrial Injuries Benefit
Pension Credit
Bereavement Support Payment
Furthermore, these benefits are now typically provided as part of Universal Credit payments and can also count as additional income:
Job Seeker’s Allowance
Employment and Support Allowance
Income Support
Housing Benefit
Working Tax Credit
Child Tax Credit
If you qualify for and receive any of these benefits, they will be consolidated into a single payment through Universal Credit. Moreover, it's noteworthy that the housing element of Universal Credit will not be counted as income since it will stop once you secure a mortgage.
Can you get a mortgage while employed and claiming benefits?
Yes, being employed while also receiving benefits can improve your chances of getting a mortgage. This is because lenders are more likely to consider your application favourably, especially if you have a stable job with a long tenure and are in a high-demand profession.
In fact, the benefits you receive can actually increase your borrowing potential. Reason being, lenders will factor in both your salary and benefit income to determine your total income, which will enable you to borrow more.
Depending on your financial circumstances and the amount you want to borrow, it might even be possible to secure a mortgage based primarily on your employment income if the loan amount is relatively small.
Can you get a mortgage while unemployed and claiming benefits?
Securing a mortgage while unemployed and receiving benefits is quite challenging, as lenders have limited information with which to assess your affordability and risk, making approval difficult.
Although it's not impossible to get a mortgage in such cases, your choices will be significantly restricted, given that most lenders are hesitant to approve mortgages for unemployed applicants, even if you can afford the repayments with your benefits. Nonetheless, some specialist lenders may be open to considering your application.
Can I get a mortgage on benefits if I have bad credit?
Securing a mortgage with bad credit while receiving benefits is possible, but it comes with significant challenges. Like any mortgage application, you must meet certain eligibility criteria, and having a poor credit score will make the process more difficult.
Being on benefits already puts you in a higher-risk category for lenders, and when combined with bad credit, your application becomes even riskier, leading many lenders to reject it. To navigate this, you may need the help of a specialist mortgage advisor who deals with high-risk cases since most mainstream lenders are unlikely to approve mortgages for those with adverse credit, even with a reliable income.
Government schemes to help people on benefits get a mortgage
Several government initiatives aim to support individuals on benefits in achieving home ownership. These include:
Mortgage Guarantee Scheme: This scheme helps buyers with a 5% deposit secure a 95% LTV mortgage and is available until 30 June 2025.
Right to Buy: This scheme allows tenants of local authority properties to purchase their homes at a discount.
Shared Ownership: With this scheme, you can buy a portion of a property and pay rent on the remaining share.
Home Ownership for People with Long-term Disabilities (HOLD): This shared ownership option is tailored for those with long-term disabilities. It provides an alternative if other shared ownership schemes do not meet your requirements.
If you already have a mortgage and are now receiving Universal Credit, you might be eligible for help through the Support for Mortgage Interest (SMI) scheme. SMI is a loan that must be repaid with interest when you sell your house or transfer its ownership.
How to get a mortgage on benefits
1. Gather proof of your income
To increase your chances of securing a mortgage, it's integral to provide clear evidence of your income. Incomplete or unclear documentation can lead to your application being declined or receiving a lower offer.
Ensure you gather and organise proof for all income sources, including your salary, benefits, child maintenance, and any additional financial support. This documentation should include:
Payslips: To verify your salary and employment.
P60: To confirm your total annual earnings and tax deductions.
Official Letters: To confirm each source of income.
Bank Statements: To show the actual receipt of funds
Council tax bill: To confirm your address and residency status.
Being transparent and thorough with your financial documentation is crucial, particularly if your situation is complex.
2. Save for a deposit and reduce your debt
Building up a substantial deposit is paramount when applying for a mortgage on benefits. A larger deposit generally enhances your borrowing capacity and makes you eligible for more competitive mortgage offers with lower interest rates by offsetting the risk associated with being on benefits. Although saving effectively might be a problem, the more you save, the better your chances of securing a favourable mortgage.
Managing and reducing your debt is equally important in this context, as high levels of debt can undermine your mortgage application. By reducing your debt, you decrease your monthly financial commitments, which often positively influences your application. Lenders need to see that you have sufficient income to cover mortgage repayments, and lowering your existing debt helps demonstrate your financial stability.
3. Review your credit reports
Regularly check your credit reports to ensure all payments are up-to-date and to identify any inaccuracies or outdated information. If you find any errors, take immediate steps to correct or remove them. Maintaining an accurate and current credit report is vital for improving your mortgage application prospects.
If you want to view your credit record to improve your chances of securing a competitive deal before you apply, you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to detect any potential mistakes or fraudulent activity on your profile, so that you can quickly handle such problems. The trial and subscription can be cancelled at any time.
4. Get an Agreement in Principle
Getting an Agreement in Principle (AIP) is an excellent way to begin your home-buying process. It gives you a clear idea of your borrowing capacity and helps you to set a realistic budget. Essentially, with an AIP in hand, you’ll have a better understanding of how much you can borrow, making property viewings more focused and efficient.
5. Speak to a mortgage broker specialising in benefits
Once you’ve completed the previous steps, the next fundamental step is to consult a mortgage broker who specialises in working with individuals on benefits. A knowledgeable broker with comprehensive experience is a valuable asset in finding the right lender and most suitable mortgage for your situation.
A broker familiar with lenders who accept benefit income can streamline your search, saving you time and effort. Their expertise can also help you secure a mortgage that offers better terms, ultimately leading to long-term cost savings.
At The Mortgage Genie, we provide expert advice on mortgage options tailored to your unique circumstances. Contact us at 01915809890 to find out how we can help you find the ideal mortgage product for your needs. And why not see how much you could borrow up to today by using our mortgage calculator?
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.