It’s estimated that around 20 million families receive some kind of benefit, with about 9 million of these being pensioners. In many instances this is to supplement other earned income. Therefore, it is no surprise that people ask, ‘can I get a mortgage if I’m on benefits?’
What we cover in this guide:
- Can you get a mortgage on benefits?
- What benefits are classed as income when applying for a mortgage?
- What’s the maximum I can borrow?
- What lenders are available?
- How to get a mortgage while on benefits
- Are there any potential disadvantages
- Can I still apply if I have a bad credit history?
- Claiming Universal Credit if I already have a mortgage
Can you get a mortgage on benefits?
Yes, you can get a mortgage on benefits. However, as with much in the mortgage industry, there is typically a little more to the answer that means not everyone will be successful. Not all benefits you receive may be used by the lender in their calculations.
Where a lender does consider benefits, it’s likely they are used in addition to another form of income. This could be PAYE or that from being self-employed. The lender may only use a proportion of the benefits rather than 100% of it in their calculations.
Other matters such as the size of deposit or the amount of equity you have may be relevant. As with anyone considering a mortgage, your credit background will be taken into account.
What benefits are classed as income when applying for a mortgage?
Some of the most common benefits that can be used as income are:
- Universal Credit
- Pension Credit
- Bereavement Support Payment
- Child Tax Credit
- Child Benefit
- Carer’s Allowance
- Attendance Allowance
- Disability Living Allowance
- Personal Independence Payment
- Maternity Allowance
- Employment and Support Allowance (ESA)
Whats the maximum I can borrow?
Your income and personal circumstances will have a significant impact on this. For the majority of people, the higher your income, the more you can borrow.
A lender will then use their income multiple to calculate how much you can borrow. This multiple is usually anywhere from 3 to 4.5, depending on the lender.So, if your total income per year is £25,000, the most you could borrow may be £112,500 (£25,000 x 4.5). And the minimum may be £75,000 (£25,000 x 3)
What lenders are available?
There are many lenders that will consider a mortgage when on benefits. Whilst the choice may still be fairly considerable, not all lenders treat them in the same way when assessing affordability. Therefore, there can be big differences in how much they may lend.
Some lenders with a flexible approach to those on benefits are:
How to get a mortgage while on benefits?
Having the best chance of approval is all in the planning. Ensuring you have up to date evidence of any benefits you receive will be crucial. Items such as:
- Latest bank statements showing the payments received.
- Your most recent award letter detailing what it is for and also outlining the amounts and duration.
Are there any potential disadvantages?
Getting a mortgage using any form of benefit income can have its disadvantages. These can be:
- Limited time for when the benefit may be received, that could restrict your possible mortgage term.
- The benefits could be subject to review, where they could be reduced or even removed completely.
- Restricted choice for your mortgage. As not all lenders will accept these, it may cut back on your options.
Can I still apply if I have bad credit?
Yes, you can still apply for a mortgage if you have a bad credit history. However, with an already reduced number of lenders that will consider benefits, this will be reduced further if you have bad credit.
The pool of choice will likely necessitate the use of a specialist lender. Knowing which lender is best for you is half the battle. Our qualified advisers will be able to establish this for you.
Can I claim Universal Credit If I have a mortgage?
Having a mortgage will not stop you being able to make a claim for Universal Credit. Indeed, your claim for Universal Credit may involve seeking assistance for your mortgage payments.
These specific benefit payments are known as Support for Mortgage Interest or SMI. As with any benefit, there is a specific set of criteria to be eligible. Do note that if your claim is successful, payments are for the interest-only element of your mortgage. There will be no contribution towards any equity in the property.
Speak to a specialist mortgage broker
Finding the right lender and the most appropriate mortgage scheme can be daunting. However, factor in the use of benefits towards your application and this only seems to make it more difficult. Not all lenders will use them, and those that do, use them in different levels to ascertain your affordability.
Sadly, most affordability calculators are simply not set up to factor this into the assessments. This is where a mortgage broker can assist. Knowing which lenders will work best for the benefits you receive will enable you to find the best suited mortgage available.
Can I get a Buy-to-Let mortgage while on benefits?
Yes, there are lenders who will consider a Buy-to-Let mortgage for someone on benefits. Many will require you to have other income from PAYE or self-employment. It may even be possible that they require a yearly income of £25,000 per annum. However, some do not impose these restrictions and as such, a Buy-to-Let may be possible with these.
Can I get a Shared Ownership mortgage on benefits?
Yes, there will be Shared Ownership mortgages available from lenders that will use benefits as an income for affordability assessment. As there is already a restricted choice of lenders who offer Shared Ownership mortgages, do expect your options to be limited.
Does Universal Credit count as income for a mortgage?
Soley relying on Universal Credit as your main income when applying for a mortgage will make your chances of success very difficult. This is because lenders will question your repayment abilities.
However, if paired with other forms of income, you’ll have a greater chance of success. This is providing that everything else is in check.