Mortgage on Benefits refers to the process of applying for a mortgage while receiving government benefits. While it may seem daunting, securing a mortgage on benefits is entirely possible with the right knowledge and preparation. This guide will explore everything you need to know about getting a mortgage on benefits, including eligibility criteria, lenders, application tips, and much more.

This article is updated as of August 29, 2024.

Mortgage policies and lender criteria may change, so always consult with a financial adviser or mortgage broker for the most up-to-date information.

Your home may be repossessed if you do not keep up with your monthly mortgage payments. It is crucial to assess your financial situation carefully before committing to a mortgage.

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Understanding the Concept of Mortgage on Benefits

A mortgage on benefits means obtaining a home loan while relying partly or entirely on government benefit s as your source of income. This could include income from Universal Credit, Disability Living Allowance (DLA), Personal Independence Payment (PIP), or other benefits. Many assume it’s impossible to get a mortgage under these circumstances, but the reality is more nuanced. Several lenders understand these situations and provide mortgages to benefit recipients. As an expert mortgage broker, we are working helping our clients navigate this often complex terrain to achieve their homeownership dreams.

Can You Get a Mortgage on Benefits?

Yes, it is possible to get a mortgage while receiving benefits. However, the process can be more complex than for those with traditional employment income. Some lenders are willing to consider benefits as part of your income when assessing mortgage applications, but they may have stricter criteria or require additional documentation to verify your financial stability.

For more details on whether you can get a mortgage on benefits, check out our article: Can You Get a Mortgage on Benefits?

Types of Benefits Considered as Income for Mortgages

Not all benefits are considered equally when applying for a mortgage. Commonly accepted benefits include:

Universal Credit: Often considered as income, especially when supplemented with employment.

Disability Benefits (DLA, PIP): Many lenders accept these, particularly if they are long-term.

Child Benefits and Tax Credits: Some lenders include these in their calculations, depending on the applicant’s circumstances.

Housing Benefit: Rarely accepted since it is specifically intended to cover rent.

Understanding which benefits are counted as income can significantly impact your mortgage application process. We will suggest you to always contact a mortgage broker to help you with such applications.

Mortgage Lenders That Accept Benefits

Several lenders in the UK accept benefits as part of a mortgage application. However, the terms and conditions may vary:

High Street Banks: Some may consider benefits, but with stricter criteria.

Specialist Lenders: These lenders often provide more flexible criteria tailored to those on benefits.

Building Societies: Often more willing to consider benefits as income.

Some of the famous mortgage lenders that lend for people of benefits are as follows:

1: HSBC

2: Barclays

3: Accord Mortgages

4: Natwest

5: Virgin Money

Key Factors Lenders Consider When Applying for a Mortgage on Benefits

When applying for a mortgage on benefits, lenders consider several factors to assess your ability to repay the loan:

Credit Score: A crucial element that can make or break your application. A higher score generally leads to more favorable terms.

Affordability Assessment: Lenders evaluate your overall income, including benefits, against your expenses to determine if you can afford the mortgage.

Employment Status: Some lenders prefer applicants with additional income from employment, even if it’s part-time.

Loan-to-Value Ratio (LTV): The amount you wish to borrow versus the property’s value. Lower LTV ratios are often more favorable.

Different Mortgage Options for People Receiving Benefits

Depending on your situation, several types of mortgages might be suitable:

Fixed-Rate Mortgages: Offer stability with consistent monthly payments.

Variable-Rate Mortgages: Can be advantageous if you anticipate a change in your income.

Interest-Only Mortgages: Generally not recommended for those on benefits due to the risk of not being able to repay the principal.

Understanding these options can help you choose the best mortgage for your needs.

Steps to Apply for a Mortgage on Benefits

Applying for a mortgage while on benefits involves several steps:

1.Assess Your Financial Situation: Ensure you understand your income and outgoings.

2.Research Lenders: Find lenders willing to accept benefits as income.

3.Prepare Documentation: Gather necessary documents, including proof of benefits, identification, and financial statements.

4.Seek Professional Advice: Consider consulting with a mortgage advisor specializing in benefit mortgages.

5.Submit Your Application: Complete and submit your mortgage application, ensuring all information is accurate and complete.

Common Obstacles and How to Overcome Them

Applying for a mortgage on benefits can present several challenges:

Limited Lender Options: Not all lenders accept benefits as income.

Higher Interest Rates: Those on benefits might face higher rates due to perceived risk.

Stringent Affordability Checks: Lenders may scrutinize income and expenses more closely.

To overcome these challenges, it is crucial to have a solid understanding of your finances and to work with lenders who specialise in benefit income.

Strategies to Enhance Mortgage Approval While on Benefits

Improving your chances of mortgage approval while on benefits involves several strategic steps:

Improve Your Credit Score: Ensure timely payment of all debts and reduce outstanding balances.

Save for a Larger Deposit: A more substantial deposit can improve your mortgage terms and reduce lender risk.

Consider a Guarantor: A guarantor can provide added security to the lender, increasing your chances of approval.

Seek Professional Advice: Consulting a mortgage advisor with experience in benefit-based mortgages can provide valuable insights and improve your application.

Importance of Credit History and How to Improve It

1: Your credit history plays a significant role in your ability to secure a mortgage on benefits. Here are a few steps to improve it:

2: Check Your Credit Report Regularly: Ensure there are no errors or fraudulent activities.

3: Reduce Outstanding Debt: Pay off credit card balances and reduce other debts.

4: Maintain Regular Payments: Make sure all bills and existing debts are paid on time.

5: Avoid Unnecessary Credit Applications: Multiple credit checks can negatively impact your score.

How Lenders Calculate Affordability for Mortgage Applicants on Benefits

Lenders use affordability assessments to determine if you can manage mortgage payments. They consider:

Total Income: Including both employment and benefit income.

Monthly Outgoings: Such as bills, debts, and other financial commitments.

Potential Interest Rate Changes: Assessing whether you could still afford payments if rates increase.

Understanding this process can help you better prepare for your mortgage application. Please contact a mortgage adviser to get all these details ready before starting mortgage application process.

How to Apply for a Joint Mortgage on Benefits

Applying for a joint mortgage while on benefits can improve your chances of approval, especially if your co-applicant has a stable income. Steps to consider include:

Assess Combined Income: Ensure both incomes are sufficient to meet lender requirements.

Review Credit Scores: Both applicants’ credit scores will be considered, so maintaining good credit is crucial.

Agree on Financial Contributions: Clarify how mortgage payments will be divided.

A joint mortgage can offer more favorable terms and increase the likelihood of approval.

How Different Types of Benefits Affect Your Mortgage Application

Not all benefits are viewed equally by lenders. Here’s how different types of benefits can impact your application:

Long-Term Disability Benefits: Often seen as stable income and may be favorably considered.

Temporary Benefits: Such as Jobseeker’s Allowance, might be less favorably considered due to their temporary nature.

Housing Benefits: Rarely included in income assessments for mortgages.

Knowing how your specific benefits are viewed can help you better prepare your application.

Essential Documents Needed for Applying for a Mortgage on Benefits

Documentation is key when applying for a mortgage on benefits. Essential documents include:

Proof of Identity: Passport or driving license.

Proof of Address: Utility bills or council tax statements.

Proof of Benefits: Official documentation from the Department for Work and Pensions (DWP).

Bank Statements: Typically required for the past three to six months.

Credit Report: To provide a comprehensive view of your financial status.

Having these documents ready can streamline the application process and improve your chances of approval. However, we would suggest you to contact mortgage broker before the application process.

Real-Life Examples of Successful Mortgage Applications on Benefits

Many individuals on benefits have successfully secured mortgages. For example:

Case Study 1: A couple receiving Universal Credit and Child Tax Credit secured a mortgage by providing a substantial deposit and maintaining a strong credit score.

Case Study 2: A single applicant on Disability Living Allowance obtained a mortgage by using a guarantor with a high income and good credit history.

These examples demonstrate that obtaining a mortgage on benefits is possible with the right approach.

Debunking Myths About Getting a Mortgage on Benefits

Several myths surround the idea of getting a mortgage on benefits:

Myth 1: “You can’t get a mortgage if you’re on benefits.” – Not true, as many lenders accept benefits as income.

Myth 2: “Interest rates will always be higher.” – While some lenders may charge higher rates, others offer competitive rates depending on individual circumstances.

Myth 3: “You need full-time employment.” – Part-time work, along with benefits, can still qualify you for a mortgage.

Understanding these misconceptions can help alleviate concerns and encourage a proactive approach to homeownership. Always contact a financial adviser before starting any application.

Advantages and Disadvantages of Applying for a Mortgage on Benefits

Before applying, consider the pros and cons of a mortgage on benefits:

Advantages

Access to Homeownership: Even with limited income, it opens the door to owning a home.

Stability and Investment: Provides a stable living environment and a potential long-term investment.

Disadvantages:

Higher Interest Rates: Some lenders may charge more due to perceived risk.

Limited Lender Options: Fewer lenders may be willing to offer mortgages to benefit recipients.

Weighing these factors can help determine if a mortgage on benefits is the right choice for you.

Insights from Mortgage Experts on Navigating the Process While on Benefits

Experts suggest several strategies for navigating the mortgage process while on benefits:

Work with Specialist Advisers: They can help identify suitable lenders and prepare your application.

Maintain Financial Stability: Keeping your finances in order is crucial to demonstrate reliability to lenders.

Explore All Options: Consider different mortgage types, guarantors, and joint applications to improve your chances.

Following expert advice can provide a clearer path to securing a mortgage on benefits.

romany youell

Feel Free To Start WhatsApp Chat With Us...

How We Work

1: We contact you and take down your details, income outgoings, name, address etc.

2: We will research the whole market and email you a detailed quote as well as a list of documents to proceed.

3: You upload the documents and information need via our channel our online portal.

Feel Free to Contact Us

FAQs

What types of benefits are considered as income for mortgage applications?

When applying for a mortgage, lenders may consider various forms of benefit income, including Universal Credit, Child Benefits, Disability Living Allowance, Severe Disablement Allowance, Attendance Allowance, and Maternity Allowance. The acceptance of these benefits as income can vary from lender to lender, and it’s essential to check with a specialist lender who deals with mortgages on benefits.

Can you get a mortgage on benefits if you have bad credit?

Yes, it is possible to get a mortgage on benefits even if you have a bad credit history. Some lenders specialise in providing mortgages for individuals with adverse credit issues. However, having a poor credit score might affect the interest rates and terms offered. Working with a mortgage broker experienced in dealing with benefit income and bad credit can help you find a suitable lender.

How does Universal Credit affect mortgage applications?

Universal Credit can be counted as a form of income by some lenders when assessing mortgage applications. However, the impact of Universal Credit on your mortgage chances depends on your credit score, additional sources of income, and the specific lender’s criteria. Some lenders view Universal Credit as a stable income source, while others might require more substantial financial stability.

What is the role of a mortgage broker for applicants on benefits?

A mortgage broker can provide invaluable assistance to applicants on benefits by identifying suitable lenders who accept benefit income. They offer professional advice tailored to your individual circumstances, help you navigate the application process, and increase your chances of securing a mortgage with favorable terms. Brokers often have access to a wider range of mortgage products than what is available to the public.

Are there specific mortgage lenders that specialize in benefits income?

Yes, there are specialist lenders that cater specifically to applicants with benefits income. These lenders are more flexible with their lending criteria and may accept a broader range of benefits, such as Pension Credit, Income Support, and Working Tax Credit, as part of your overall income. Consulting a specialist mortgage adviser can help you connect with these lenders.

What documentation is needed for a mortgage on benefits?

To apply for a mortgage on benefits, you will typically need to provide several documents, including proof of identity, proof of address, bank statements, benefit award letters, and a recent credit report. These documents help lenders assess your financial stability and verify your sources of income.

Can you get a Buy-to-Let mortgage while on benefits?

Securing a Buy-to-Let mortgage while on benefits can be challenging but not impossible. Lenders will closely examine your benefit income, other sources of income (such as rental income or a part-time job), and your overall financial circumstances. It’s often advisable to consult with a mortgage specialist to understand the best options available.

How does receiving a long-term disability benefit impact mortgage eligibility?

Receiving a long-term disability benefit can impact your mortgage eligibility positively, as some lenders consider this a stable and reliable income source. However, the impact also depends on other factors like your credit history, affordability assessment, and overall financial circumstances. Consulting a mortgage adviser familiar with disability benefits can help improve your chances of approval.

Can housing benefits be used as income for a mortgage application?

Housing benefits are generally not considered as a valid source of income for mortgage applications since they are intended to cover rental payments rather than mortgage payments. However, having housing benefits might still indirectly affect your mortgage application if it reduces your living costs, thereby potentially increasing your disposable income.

What are the best mortgage options for people receiving benefit income?

People receiving benefit income might find more favorable terms with fixed-rate mortgages, which provide stable monthly payments, or shared ownership schemes, which allow them to buy a portion of the property and pay rent on the remaining share. These options can be particularly appealing for those with limited income or uncertain financial futures.

Is it possible to get a mortgage on benefits without a guarantor?

Yes, it is possible to get a mortgage on benefits without a guarantor, but it may be more challenging. Some lenders may require a guarantor if your income from benefits or credit score does not meet their requirements. However, with a larger deposit or additional income sources, you might qualify for a mortgage without needing a guarantor.

What impact does a credit score have on getting a mortgage on benefits?

Your credit score plays a crucial role in determining your eligibility for a mortgage on benefits. A good credit score can help you secure more favorable terms, lower interest rates, and increase your borrowing power. On the other hand, a low credit score might limit your options and result in higher rates. It’s advisable to regularly check and improve your credit score before applying.

Can a mortgage broker help applicants with bad credit and benefit income?

Absolutely. A mortgage broker can be particularly helpful for applicants with both bad credit and benefit income. They have access to a network of lenders willing to consider these circumstances and can guide you through the process, improving your chances of finding a suitable mortgage deal.

How do government schemes assist individuals on benefits to get a mortgage?

Several government-backed schemes, such as the Help to Buy or Shared Ownership schemes, assist individuals on benefits in getting onto the property ladder. These schemes provide additional support, like equity loans or shared ownership options, making it easier for those with limited income to buy a home.

How do personal circumstances affect mortgage applications for disabled people?

Personal circumstances such as long-term health conditions, income from benefits, and overall financial stability significantly affect mortgage applications for disabled people. Lenders assess these factors to determine the risk involved. It’s crucial to provide a clear picture of your income and stability to improve your chances of approval.

What role do mortgage calculators play in planning for a mortgage on benefits?

Mortgage calculators are essential tools that help individuals on benefits estimate their mortgage repayments, understand their borrowing power, and assess the affordability of different mortgage options. These calculators take into account various factors like interest rates, loan amounts, and income, providing a clearer picture of what to expect during the application process.

Conclusion

Securing a mortgage on benefits requires thorough preparation, understanding the eligibility criteria, and finding the right lender. While it presents unique challenges, it is entirely possible with the right approach and assistance. By leveraging available resources, seeking expert advice, and carefully preparing your application, you can achieve your goal of homeownership even while receiving benefits.

About the Author – Romany Youell

Romany is our Financial Planner. After leaving school with all A and above graded GCSE’s, she started studying English Language, Sociology and Psychology but soon realised that her interest lay in finance and that’s where she wanted her future career to be.
After gaining access to the respected Quilter Financial College, Romany has been studying hard, passing exams with distinctions and when she passed she was one of the UK’s youngest female financial planners, bringing a modern, up to date approach and current knowledge to financial services.
She looks after all our existing clients and new clients and their finance planning such as pension, investments and advice.
In her spare time she enjoys spending time with her partner and close friends.

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