I’m Damian Youell an experience mortgage broker with over a decade of experience. I’m dedicated to helping clients by offering an efficient and friendly service.
Over the years we have streamlined our systems and procedures and adapted processes to enable us to make the whole process very straight forward and easy for our clients.
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Can you get a Mortgage on Benefits?
Being on government benefits, whether as a supplement to a wage or in full, doesn’t mean you can’t qualify for a mortgage but it is important to understand what lenders are looking for.
One of lender’s most important and main objective is to ensure that borrowers who they are lending to, can afford the mortgage repayments in order to prevent the future possibility of missed mortgage payments and repossessions. For this reason they will carefully look at an individual’s income and affordability and make an assessment. This is not a difficulty that is exclusive to people on benefits as there are many people who are working and not in receipt of benefits who still find themselves unable to get a mortgage.
We discuss below how to get a mortgage and other useful information.
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 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 are no certainty 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 presents prove 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 take into consideration the past, present and the future when it comes to 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 shown to 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 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 leftover each month to pay your mortgage commitments after taking into consideration living costs, bills and other essential payments. Bank statements will usually be asked for by the lender.
As interest rates can change with economic climates, calculations will be carried out for scenrios where interest rate rises to assess if the applicant would be able to continue making their monthly mortgage payments despite the increased cost.
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.
It is important to be aware of other associated costs with the mortgage process and being a homeowner. We have listed some of the main costs to consider:
Mortgage application fees and surveyor costs – these costs will vary.
Legal fees – a solicitor or conveyancer will need to be instructed to complete your paperwork.
Moving costs – costs of moving property or buying more furniture for the new property.
Stamp duty – if this is not your first property or the property value is within certain thresholds, you may be liable for stamp duty costs.
Insurances – home and/or content insurance.
Household bills – owning a property might lead to responsibilities for more bills.
Life insurance – may be difficult to find cover for pre-existing medical conditions so it may require more research into acceptable providers.
House repairs – in most cases house repairs are landlord’s responsibility when renting but it is your own responsibility when you own your property and some insurance policies may not cover general house repairs.
Support for mortgage interest (SMI)
There may be further support you can receive from the government towards interest payments although it is important to note as of April 2018, SMI changed from a benefit to a loan which would need to be repaid.
Being on benefits doesn’t totally eliminate you from being able to get a mortgage but it is important 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.