If you rely on benefits for a portion of your income, it’s not uncommon to worry about whether you’ll be able to get a mortgage. Fortunately, getting a mortgage on benefits does not have to be as difficult as you might fear. Being on benefits will not stop you from getting a mortgage, but it may limit the number of lenders that are able to consider your application. There are also a few things that will need to be assessed, including your total income, your credit score and what benefits you're on.
In this guide, we’ look at how you can get a mortgage while on benefits, as well as ways that you can help reduce the likelihood that your mortgage application will be declined.
The Topics Covered in this Article Are Listed Below:
- How a Mortgage Application Impacts Your Credit Report
- How Can You Minimise the Impact of Your Mortgage Application?
- How Can You Improve Your Chances of Being Approved?
- How Much Does a Mortgage Application Affect Your Credit Score?
- Can Securing a Mortgage Open the Door to Other Credit Opportunities?
- What if You Struggle to Make the Payments After Applying?
- How Can You Restore Your Credit Score if It Has Been Affected?
- Ready to Apply for a Mortgage with Minimal Credit Risk?
Will Being on Benefits Stop Me from Getting a Mortgage?
Receiving benefits will not stop you from getting a mortgage, but it may reduce the number of lenders who can consider you. This is because not all lenders will consider benefits as an income source and some lenders will consider certain benefits but not others. There are quite a few lenders that will consider 100% of benefits such a disability living allowance, working tax credit, etc.
It’s important to note that whether you’re on benefits won’t be the deciding factor as to whether you can attain a mortgage. Lenders will require that you meet a variety of criteria. To do this, they’ll assess your credit history, your income, your expenditure and more.
How Do Benefits Affect How Much I Can Borrow?
When deciding how large a mortgage you can be offered, lenders will consider your affordability. This means they’ll look at your income against your outgoings such as loans, finance plans and other monthly costs.
The thing to bear in mind is that not all lenders will consider your benefit payments as part of your income when they’re calculating your affordability. Whether they do consider benefits will depend on the lender and their criteria. If you choose to apply with a lender that won’t consider benefits as part of your income, the amount you can borrow will likely be less than if you applied with a lender that can take benefits into account.
Can You Get a Mortgage on Disability Benefits in the UK?
Receiving disability benefits will not stop you from getting a mortgage. Disability benefits can sometimes be considered a stable income if you have a lifelong disability and thus could be expected to get benefits indefinitely. This could make it easier to get a mortgage lender to lend you enough for you to buy a property you want.
Can You Get a Mortgage on Income Benefits?
It could be harder to get a mortgage if you’re on income-related benefits. This is because these benefits usually make up the majority of your income and your total income may be quite low. However, you might be able to have this benefit income taken into account too boost your affordability if you’re applying alongside someone else with a higher income.
Can I Get a Buy-to-Let Mortgage While on Benefits?
Getting a buy-to-let mortgage on benefits is possible, but it will mean passing the same checks and income requirements that you would normally have to deal with when looking for a buy-to-let mortgage. This often means having a higher deposit than for a residential mortgage, as well as proving that you can afford the buy-to-let mortgage as well as any other mortgages and loans you have to pay.
What Deposit Will I Need for A Mortgage While I Am on Benefits?
Getting a deposit on benefits will require the same deposit as you would usually need for a mortgage. The usual minimum deposit for a residential mortgage is 5% - 10% of the property's purchase price. This would likely be higher for a buy-to-let mortgage, a second home mortgage, or a holiday home mortgage. You would potentially also need a higher deposit for some mortgage types for unusual properties such as non-standard construction properties, flats with cladding, or ex-council properties.
If you're struggling to secure a large enough loan for your chosen property due to affordability and income issues, you could look at increasing the size of the deposit you put forward. Paying a large deposit will mean that you do not have to borrow as much, which means your affordability calculations are more likely to cover the amount you need to borrow. Offering a higher deposit can also give you access to cheaper interest rates.
Which Benefits Do Lenders Accept?
Different lenders will accept different benefits as part of your income calculations.
Some lenders may accept the following benefits:
- Universal Credit
- Child Tax Credit
- Child Benefit
- Maternity Allowance
- Pension Credit
- Carers Allowance
- Attendance Allowance
- Incapacity Benefit
- Disability Living Allowance
- Personal Independence Payment
- Severe Disablement Allowance
- Widow Pension
- Job Seeker's Allowance
Remember that not all lenders will necessarily accept any or all of these benefits. You’ll have to find out which lenders accept which benefits when you're applying for your mortgage. The best way to do this is to speak with a mortgage broker like John Charcol.
What If I Am on Other Benefits?
This is not an exhaustive list and some lenders might accept other benefits. It's important to note that some benefits will not be accepted by most lenders for income calculations. For example, Housing Benefit and the housing component of Universal Credit will not usually be considered as these are only paid if you’re in rented accommodation, so you would no longer receive this once you buy a house.
If you're unsure how your benefit payments might affect your chances of getting a mortgage approved, you can contact a broker with experience in getting a mortgage on benefits, such as John Charcol. We can advise you and give you information on what to expect during the process as well as what options you have available.
Can I Get Help with My Mortgage on Benefits?
There are some government schemes designed to help people who may be struggling to get on the property ladder. These could be helpful assuming you meet the criteria.
For example, you may find assistance from:
- Right to buy: letting people buy their council homes
- Right to acquire: for people in housing association properties
- Mortgage guarantee scheme: giving better access to a range of mortgages with a 5% deposit
- Shared ownership: where you buy part of the property and pay rent on the remaining part
- Homeownership for people with long-term disabilities: this is similar to a shared ownership scheme for people with lifelong disabilities
Your mortgage broker should be able to tell you if you qualify for any of these schemes and how they work.
How Will Benefits Affect a Joint Mortgage?
Being on benefits will not normally affect your chances of getting a joint mortgage. This is especially the case if at least one of the applicants has some income that doesn’t come from benefits. The only impact being on benefits may have on your application is whether they’re included in the affordability calculations – and this will depend on the lender’s criteria.
Can I Remortgage if I Am on Benefits?
Yes, you should be able to remortgage when you’re on benefits. However, you should bear in mind that your affordability might have changed since you got your original mortgage, so you will have to see what new options you have to match your new circumstances. A broker can guide you towards the right lender and product for your situation.
What Do I Do If I Have Gone onto Benefits While I Have a Mortgage?
If you have gone onto benefits while currently paying off a mortgage this shouldn’t affect your mortgage unless you can no longer cover the repayment. In this situation, contact your lender immediately to discuss your options.
How Your Credit Score Will Affect Getting a Mortgage While on Benefits
Your credit history is a major factor that lenders look at when they decide whether or not to offer you a mortgage. Lenders will want to see that you have a good credit history as this shows that you have been paying back your loans on time and managing your finances responsibly.
The things that mortgage lenders will look at when checking your credit history include the following:
- Your overall score: this is the numerical value given to your credit history to suggest how likely you are to pay back lines of credit. A higher number is better, but all agencies and lenders have different scales. If you have no credit history or have had adverse credit issues in the past, you’ll usually have a low score which can make finding a mortgage more challenging
- Late or missed payments: if you have missed payments or made late payments, this will be shown in your credit history and it can make some lenders worry that you might not meet your repayments. These late payments could be from overdrafts, credit cards, or other loans and deals
- Major issues: if you have more major credit issues such as county court judgements, defaults, individual voluntary agreements or bankruptcy, these will be flagged as major incidents on your credit history. These could make it harder for you to get a mortgage
- Overuse of credit: it’s generally preferable not to use all the credit you have been allowed. If you're using almost all of your credit, this could suggest to lenders that you have financial issues or poor financial management, and it could suggest that you’ll struggle to make your mortgage payments if an emergency arises
- Mortgage defaults: mortgage lenders will look for issues you've had with paying mortgages in the past, as this shows how you might treat future mortgages
- Too many credit checks: mortgage lenders will not look favourably on your credit history if you've had several recent hard credit checks performed. Hard credit checks are made when you apply for a new line of credit. Having too many hard credit checks suggests that you are trying to take out more credit, which could affect your mortgage repayments
If you need to work on increasing your credit score due to poor credit history, you could try the following:
- Pay off any outstanding debts
- Make all future payments on time
- Avoid missing any future payments
- Register on the electoral register
- Try to use a lower percentage of your total credit lines
- Avoid additional hard credit checks
- Wait to apply for a mortgage so that past bad credit events, such as defaults, etc. become less relevant
How a Broker Can Help with Getting a Mortgage on Benefits
While being on benefits does not necessarily mean that you cannot get a mortgage, it can be harder to find lenders who will include your benefits in the income assessment. This means it could be a challenge to find a suitable lender. Using a broker like John Charcol gives you access to lenders from across the market. With our knowledge and experience, we can find you the right lender with the best deal for your circumstances.
Can I Get a Mortgage if I Am on Benefits? Find Out Today
Get in touch with one of our expert advisers on 0330 433 2927 today to find out if you can get a mortgage while on benefits. We’ll answer all your questions and get you started on your journey to homeownership.
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