When the time comes, most of us will need a mortgage to make buying a property possible. But what if your income includes benefits? Can you still get a mortgage?
Whether you receive disability support, Universal Credit, or another type of benefit, you’ll be glad to know that it’s possible to get a mortgage and own a home.
There are a few things to be aware of if you receive benefits, however, and it’s a good idea to do your research in advance. We’re here to run through everything you need to know about applying for a mortgage on benefits.
Can you get a mortgage on benefits? The quick answer is yes.
When it comes to offering out loans, mortgage lenders base their decision on various criteria. The most significant single factor is affordability. In short, can you afford to repay the mortgage over the specified term, and is your source of income stable enough to justify the potential risk?
By law, lenders are not allowed to discriminate against people whose income includes benefits. For example, if you have a long-term illness or disability, you have a legal right to the same mortgage rates, offers, and terms as anyone else.
However, every mortgage decision is case-specific and will depend on your personal circumstances and credit history. For a start, any lender will want to look at your debt-to-income (DTI) ratio when making their decision. The type of benefits you receive will also have an impact, with mortgage lenders usually favouring stable, long-term arrangements over more temporary support.
The good news is that claiming benefits is not an automatic barrier to getting on the property ladder. Providing you can afford monthly repayments and meet the lender’s other criteria, buyers on benefits can apply for a mortgage and have as much choice as anyone else.
A wide range of mortgage lenders, including established high street banks and lenders, will accept some government benefits as income when assessing your application. These include:
Disability Living Allowance (DLA)
Incapacity Benefit (IB)
Severe Disablement Allowance
Industrial Injuries Benefit (IIB)
Child Tax Credit (now Universal Credit)
Housing Benefits (now Universal Credit)
The types of income accepted are different based on the provider you choose. You’ll need to research potential mortgage lenders to determine which ones take your kind of benefits as a suitable income source. This is where a mortgage broker might be helpful – we’ll have more on this below.
Typically, lenders tend to prefer long-term benefits that aren’t likely to be withdrawn over the mortgage term, such as long-term disability. Others might only accept benefits as part of your application if you have additional income from other sources. For example, if you’re retired or have a job.
You may also want to take out mortgage payment protection insurance or open a savings account with an emergency fund. This could reduce the risk of not being able to afford your mortgage repayments if your benefits stop.
It’s important to remember that just because your benefits are classed as income by a particular provider, it doesn’t guarantee they’ll offer you a mortgage. Mortgage decisions always come down to your specific circumstances, history, affordability, and other lender requirements. These are often updated to reflect changes in the market.
Since 2013, many different government benefits have been consolidated into a single payment under Universal Credit. However, while the name might have changed, mortgage lenders still approach these benefits in the same way.
The upside is that Universal Credit should not prevent you from getting a mortgage, and lenders can’t legally decline your application on that basis alone. It’s also helpful to know that if you’re claiming Universal Credit and already have a mortgage, you may qualify for Support for Mortgage Interest (SMI). This is a loan that could help cover your payments. SMI may also be available to those receiving traditional Jobseeker’s Allowance (JSA).
Suppose you have a low income that is partly or entirely made up of benefits. In that case, it’s a little harder to demonstrate you can afford the long-term commitment of a mortgage. But it’s not out of the question.
Affordability is relative. If you have a low income, but you’re hoping to buy an inexpensive property, there’s a good chance you’ll be eligible for a mortgage. You have even more of an opportunity with a good credit history and an income that’s sustainable over the long-term.
Bad credit history is one of the most significant barriers to a successful mortgage application, regardless of whether you’re receiving benefits or not. However, it’s not a complete deal-breaker.
Many lenders specialise in working with people with a poor credit score. There are ways to mitigate lenders’ risk, like taking out a joint mortgage with someone with a good credit history, putting up a larger deposit, and getting a guarantor. There are also ways to repair your credit score over time.
If you’re on benefits and your credit history doesn’t look good, it’s worth checking out the best bad credit mortgages on the market to see what your options are.
Generally, the rules around how much you can borrow as a mortgage are the same, whether your income comes from traditional employment, benefits, or a combination of the two.
Mortgage lenders will typically lend between 4 and 5 times your individual income or 3 to 4 times your joint income if you’re applying for a mortgage with someone else. Each lender has different criteria for the maximum amount you can borrow, so it’s worth shopping around or using a mortgage broker to compare lenders for you.
Affordability is key; if you already have a lot of debt on credit cards or other loans, your maximum mortgage may be lower. Similarly, bad credit can affect the rates and terms you’re offered.
You should think carefully about how much you want to pay per month on your new mortgage, especially if you’re on a low income or rely on government benefits.
If your mortgage repayments are more than 30% of your total take-home income, you may find yourself ‘house poor’, where you own a house but can’t afford to build up your savings, go on holiday, or buy things you want. Getting onto the property ladder is an excellent idea, but not if it means struggling day-to-day.
If you’re receiving benefits, make sure a mortgage is truly affordable before going ahead. When it comes to how much you can borrow, it all depends on your total income from all sources – the higher this is, the more you can borrow. Remember, lenders want some assurance that this level of income is sustainable. That’s relatively easy to demonstrate if you’re receiving a lifetime disability allowance but less so if you’re claiming Jobseeker’s Allowance for a few months.
Mortgages come in all shapes and sizes, and with so many different options to choose from, it can seem a bit daunting. There are many options to consider, from repayment to interest-only, fixed-rate to variable mortgages, before deciding. That’s why comparing mortgages is so essential to figure out what’s best for you.
There is no best mortgage out there, just the mortgage that best suits your particular needs. If you receive benefits, you’ll have a choice of several mortgages, with even more options if you show that you can afford your repayments long-term.
Prospective buyers on benefits can apply for buy-to-let mortgages, too! Some lenders will take your benefit income into account when deciding whether to offer you a buy-to-let mortgage. But if you do receive benefits, you could face stricter affordability criteria and have fewer mortgage providers to choose from.
Applying for a mortgage while receiving benefits can be challenging. It’s worth looking into what support is available before you start exploring mortgages and properties.
You might want to see if you’re eligible for Help-to-Buy, Right-to-Buy, Starter Home, or Shared Equity schemes. These could all help make getting a mortgage more affordable if you’re currently receiving benefits.
Some schemes are designed to help council house tenants buy their homes at a discounted price. Buying your council house could be a good option for those on benefits or with a low income.
Variations of the scheme are available in England and Northern Ireland but not in Scotland or Wales. To be eligible for the Right-to-Buy plan, you must have lived in a council-owned property for at least three years and use it as your main home. You can apply if you rent from the council, a housing association, NHS trust, or a public sector landlord. Properties let by private landlords are omitted.
You can apply for a Right to Buy mortgage while claiming benefits. Still, you will have to demonstrate your affordability in the same way as you would for standard mortgages. This should be easier if you receive a substantial discount on the market value of the property.
Although many popular high street providers now offer Right-to-Buy mortgages, you may have fewer lenders to choose from. You could also be excluded if you have a history of debt. However, Right-to-Buy remains a good option if you have a low income and claim benefits but dream about owning your council home.
While most housing association tenants will not qualify for the Right-to-Buy scheme, they may be eligible for the Right-to-Acquire plan instead. This also offers the chance to buy your council home at a discount, albeit a smaller one.
You have two options for choosing a mortgage:
Approaching a lender directly
Choosing a mortgage with the help of a market broker
You might find a market broker helpful if your finances are complicated or if you want to make sure you’re getting the best mortgage rates.
A market broker is not tied to any banks, building societies, or lenders. This means they can expertly assess every mortgage to find you the best deal possible.
If you’re claiming benefits, a broker can help you navigate the often confusing world of mortgages. This includes which benefits different lenders will accept as income and how your income sources impact the mortgages you can afford.
For instance, some lenders may only take a percentage of your child benefit and child tax credit as part of your overall income. This is where a broker’s expertise may come in handy, helping you find the lender whose criteria best matches your circumstances.
Buying a house is a big decision. It can feel exciting, stressful, and overwhelming in equal measure – even more so if you’re on benefits and unsure of whether you can get a mortgage in the first place.
You might have already dismissed the idea of owning your home, but it is possible! Yes, it might be a little more challenging, and you may have more to prove when it comes to affordability. Still, there are lots of great opportunities and options out there for you. You can absolutely get a mortgage on benefits and enjoy the satisfaction of owning your own home.