Can You Get a Mortgage on Benefits? – What You Need to Know

Homeownership is within reach, even if you’re on benefits. With a growing number of lenders in the UK offering mortgages to people on benefits, there are more options than ever before. However, it’s important to contact a specialist mortgage broker to help you with the mortgage application. 

In this article titled as ” Can you get a Mortgage on Benefits?”, we will provide a comprehensive guide that will help you understand the options available to people who are receiving benefits and how they can leverage those benefits to purchase a home.

Over the years, we have received many queries from people asking the same question “Can we get a mortgage on benefits?” and the answer is yes.

Yes, it is possible to get a mortgage on benefits in the UK. While it may be more challenging than for someone with a traditional income, some lenders are willing to consider applications from borrowers on benefits.

The key is to understand your options and to be prepared to provide evidence of your ability to repay the mortgage. This may include showing that you have a good track record of managing your finances, that you have a stable income from other sources, or that you have a plan for how you will afford the mortgage if your benefits change.

Post Topics

Getting a mortgage on benefits

Things to consider when getting a mortgage

What are the eligibility criteria for getting a mortgage on benefits in the UK?

Next steps

FAQ: Securing a Mortgage While on Benefits in the UK

Getting a mortgage on benefits

It is possible to get a mortgage even if you are disabled or ill and receiving benefits, but there are several determining factors, and it is important to understand what lenders are looking for. If you can afford a mortgage, then lenders and banks are not legally allowed to reject an application just because of your disability or illness.

The issue lenders may have to consider when using benefit income to fund a mortgage is that benefits may not be deemed as a reliable source of income as they can be stopped at any time. It is the lender’s regulatory obligation to assess that a borrower can afford the monthly mortgage repayments; otherwise, in the worst-case scenario, the borrower’s property could be at risk of repossession.¬

Having a short-term illness might mean the lender can’t consider your benefit as a source of income as there is no certainty about how long the benefit payments will last and the impact of this on your ability to make mortgage payments once it stops. Having a long-term disability proves that the benefits income is unlikely to stop, and lenders are more willing to accept this, providing all other requirements are met.

Things to consider when getting a mortgage

Lenders consider the past, present and future when making a lending decision.

It is good practice to check your credit report and credit score often, but it is definitely important to check before applying for a mortgage. Although there are some instances where lenders will accept bad credit, depending on the severity and how long ago it was, it is best to keep your record as clean as possible to improve your chances of being accepted for a mortgage. If you have a bad credit history or have fallen behind with payments previously, lenders may tread with caution as it might make them consider whether you would default on their mortgage repayments.

Income, as highlighted previously, is vital in a lender’s assessment as to whether a borrower can afford their monthly payments along with other housing and living expenses, and lenders will usually want to see previous records of this, such as wage slips and benefit statements and calculations.

Lowering your monthly payments and outgoings as much as possible is sensible. It will show a lender you have enough money left each month to pay your mortgage commitments after considering living costs, bills and other essential payments. The lender will usually ask for bank statementsA record of a borrower's financial transactions often requir....

As interest rates can change with economic climates, calculations will be carried out for scenarios where interest rate rises to assess if the applicant can continue making their monthly mortgage payments despite the increased cost.

Deposit

The more you can save towards your deposit, the better your chances of obtaining a mortgage. The more you need to borrow from a lender, the higher the loan-to-value (LTV) ratio which means more lending risk for the lender, so interest rates and arrangement fees could be more expensive. Saving more for your deposit could help lower your monthly payments and increase your chances of being accepted for a mortgage.

Other costs

When getting a mortgage and becoming a homeowner, it’s important to be aware of the additional costs involved. Here are some of the main things to consider:

• Mortgage fees and surveyor costs: These vary depending on the lender and the property.
• Legal fees: You’ll need to hire a solicitor or conveyancer to handle the legal paperwork.
• Moving costs: This includes the cost of hiring a removal company, as well as any other expenses related to moving to your new home, such as buying new furniture.
• Stamp dutyA tax paid by the buyer when purchasing a property.: If this isn’t your first home, or if the property value is over a certain threshold, you’ll need to pay stamp duty.
• Insurance: You’ll need to take out home and contents insuranceInsurance that covers damage to the contents of a property. to protect your property and belongings.
• Household bills: Owning a home means you’ll be responsible for all the household bills, such as energy, water, and council tax.
• Life insurance: It’s important to have life insurance in place to protect your loved ones if you die unexpectedly. This is especially important if you have children or a mortgage.
• House repairs: As a homeowner, you’ll be responsible for all house repairs. Some insurance policies may cover certain repairs, but not all.

It’s important to factor in all of these costs when budgeting for getting a mortgage and becoming a homeowner.

Support for mortgage interest (SMI)

SMI is a loan that can help you pay the interest on your mortgage. It is available to people who are on certain benefits, such as Income SupportIncome received by borrowers who are on a low income., Universal CreditA government benefit that replaces several other benefits, i..., and Pension Credit.

You can apply for SMI if you:

• Are a homeowner
• Have a mortgage
• Are getting, or treated as getting, a qualifying benefit

SMI is paid directly to your mortgage lender. It is not a grant, so you must repay the loan with interest when you sell your home or transfer ownership. The interest rate on SMI is currently 3.28% (as of November 2023).

What are the eligibility criteria for getting a mortgage on benefits in the UK?

Getting a mortgage on benefits in the UK can be possible but there are specific eligibility criteria that must be met. Firstly, you must be receiving one of the qualifying benefits such as Income Support, Universal Credit or Pension Credit. You will also need to have a deposit saved and have enough money left each month after essential living costs and bills to cover the mortgage payments.

Lenders will assess all applicants to ensure they can afford the mortgage payments. They will look at your income, expenditure, credit history and any other relevant factors. It is important to be realistic when applying for a mortgage on benefits and have a budget in place that you can stick to.

It’s also advisable to shop around for the best deal. Different lenders may offer different rates and terms, so it’s worth taking the time to find the best one for your individual circumstances.

Next steps

Being on benefits doesn’t totally eliminate you from being able to get a mortgage but it is essential to understand that it depends on different factors such as your income, affordability calculations and personal circumstances, and lenders work on a case-by-case basis.

If you do rely on benefits as a source of income and are looking to get a mortgage or would like some impartial advice, please get in contact with us.

FAQ: Securing a Mortgage While on Benefits in the UK

The Impact of Universal Credit on Mortgage Applications

Can Universal Credit Affect Mortgage?
Yes, Universal Credit can influence your mortgage application. Lenders often perceive Universal Credit as a less stable source of income compared to regular employment, which may affect the affordability assessment.

• Universal Credit is often viewed as a less stable income.
• It can influence the lender’s affordability assessment.
• Some mortgage providers may require additional income sources.

Steps to Buy a House While on Benefits

How to Buy a House on Benefits in the UK?
It’s possible to buy a house while on benefits, although it can be more challenging. Consulting an experienced mortgage broker specialising in benefit income cases can be beneficial. Government schemes like shared ownershipA scheme where a borrower purchases a share of a property an... can also assist you in climbing the property ladder.

• Consult a specialised mortgage broker.
• Consider government schemes like shared ownership.
• A larger deposit may be required if relying solely on benefit income.
•  

Common Barriers to Mortgage Approval

What Stops You from Getting a Mortgage in the UK?
Several factors can prevent you from securing a mortgage. These include a poor credit history, lack of stable income, and failing the lender’s affordability check. Some types of benefit income, such as short-term disability allowance, may not be considered by lenders.

• A poor credit history can be a significant obstacle.
• Lack of stable income is often a concern.
• Certain types of benefit income may not be considered.

Mortgage Options for Low Annual Income

Can I Get a Mortgage on £20,000 a Year in the UK?
Securing a mortgage on an annual income of £20,000 is challenging but not impossible. Your borrowing power will be limited, and you may need to seek mortgage deals that offer favourable terms for low-income applicants. An independent mortgage adviser can help you navigate the mortgage market.

• Borrowing power is limited with a £20,000 annual income.
• Look for mortgage deals tailored for low-income applicants.
• An independent mortgage adviser can provide expert advice.

Benefits Eligible for Mortgage Applications

What Benefits Can Be Used for a Mortgage in the UK?
Certain benefits like long-term disability benefits, child tax creditsIncome received by borrowers in the form of child tax credit..., and housing benefits can be considered as additional income for mortgage applications. However, this varies from lender to lender, and you may need to provide bank statements as proof.

• Long-term disability benefits can be considered.
• Child tax credits may also be counted.
• Bank statements may be required as proof of benefit income.

By understanding these key points, you can better prepare for the complexities of securing a mortgage while on benefits in the UK. For personalised advice tailored to your financial situation, it’s always best to consult an experienced mortgage broker.