Getting a mortgage with a high deposit but low income is not impossible, it just requires some careful planning and an understanding of the risks involved.
The first thing you need to do when looking for a mortgage is to find out what your current income is. This will be used as part of the calculation that determines how much you can borrow and how much you have to put down.
If you are self-employed or on benefits then you may want to look at the Self Assessment Mortgage Information (SAMI) which gives you information about the amount of tax you pay and the rate of interest you would get if you borrowed money from HM Revenue and Customs (HMRC).
If you are employed then you should check whether you are eligible for any government help such as Working Tax Credit or Universal CreditA government benefit that replaces several other benefits, i.... These could reduce your monthly income and therefore affect the size of your mortgage.
Here in this article on mortgages with high deposits and low income, we will help you to learn more about your mortgage options. We will answer the frequently asked questions such as what is considered a large mortgageA mortgage for a large amount. deposit, can a large deposit gets me a better mortgage deal, should I do a large deposit if I have a bad credit report etc.
What is considered a large mortgage deposit?
For most mortgages, a high deposit is normally considered anything between 25% and 50%.
Usually, the minimum deposit that a bank would require is five per cent of the property value. However, there may not always be a wide range of choices for banks and deals, and sometimes they come with an unfavourable interest rate.
If you’re able to, you could offer a bigger deposit than the seller, which would help you get cheaper interest rates and/or shorter loans.
From here on out, the best mortgage deals usually come at the lowest interest rate. This is where the most favourable mortgage rates tend to kick in. As long as you meet their other criteria, they usually go down on a sliding scale.
If you put down a 50 per cent deposit, you may be eligible for the very best interest rates available, provided you meet the lenders’ eligibility criteria. However, only a small minority of mortgage borrowers are in the position to do this.
With a deposit, this high, your chances of getting a good mortgage deal are better.
Can a large deposit get me a better mortgage deal?
The lower your annual income, the less borrowing power you have, therefore the less likely you are to be accepted by mortgage lenders. One way it can be raised is by increasing borrowing power using joint borrowing and combining multiple incomes into a joint mortgage, shared ownership is common with married couples. Another way is making a larger deposit which can greatly increase your chances of approval, while simultaneously getting you a more favourable deal.
If you have a larger deposit, you’re likely to get better mortgage deals than if you don’t have one. This is because having a large deposit means you pose less of a financial threat to lenders. You’re much more likely to reach the deposit requirements and receive competitive rates.
Larger deposits mean you have a larger range of lenders to choose from,
High Street Banks and Lenders classify Mortgages by Loan To ValueThe ratio of the mortgage amount to the value of the propert... (LTV), which is the ratio between the total mortgage (the sum of the interest rate and the principal borrowed) and the property’s market value.
For example, if you had a 20% deposit, you would require a 80% LTV mortgage.
For most mortgage lenders, the larger the deposit size, the cheaper the mortgage rate is.
Can a large deposit affect my mortgage repayments?
If you put down a large deposit, you should have a smaller mortgage loan to pay off. It’s great if you’re an applicant who wants low monthly mortgage payments.
If you’re looking to get a low-income mortgage, then you might want to consider making smaller monthly payments as this will be deemed more affordable for lower incomes.
Should I do a larger deposit if I have bad credit?
If you have a bad credit score, paying a larger deposit should increase your chances of being accepted for a mortgage. The amount you must put down depends on the severity of your bad credit score.
Lenders will consider several factors; such as the severity of the bad credit, how many credit issues you possess and the recency of the issues.
How can I improve my credit rating?
Improving your credit rating will improve your chance of mortgage approval and getting a good deal.
Focus on making sure that you clear any debts that you owe, pay off your overdraft, and cancel unused/unnecessary cards, you can also avoid taking out any new loans for at least 6 years prior to applying for a mortgage. This will result in serious black marks – such as CCJs – being removed from your score after 6 years, so it may be beneficial to wait.
0% deposit mortgages
A zero per cent down payment mortgage means that you do not need to put any money down when buying a home. This is great for first-time buyers who don’t want to spend thousands of pounds upfront. However, most lenders require borrowers to put at least 20% down.
Help to Buy is a government scheme to help first-time buyers get a property with just a 5% deposit. You can borrow 20% of the purchase price (40% in London), interest-free for five years. The scheme is applicable until 31st October 2022 and home purchases must be completed by 31st March 2023.
Help to Buy requires the buyer to pay 5% of the property value in a deposit, the government will then grant up to a further 20% as a loan.
This is going to be replaced the mortgage guarantee scheme introduced by Rishi Sunak, which is a government-backed guarantee:
95% mortgage guarantee scheme is another government guarantee which helps first-time buyers or current homeowners secure a mortgage with only he gives providers the confidence to lend and help families and young people get on the property ladder without the prohibitive burden of a large deposit.
Lots of parents have been supporting their children helping them to join the housing ladder by helping them put down a larger deposit.
One way is a Gifted Deposit
, also known as a financial gift. This is a cash gift which can cover some or all of a mortgage deposit, this can help you afford a more expensive home.
Another way is Equity Release
, this is a type of mortgage where the homeowner can choose to release funds, allowing parents to access the cash tied up in their mortgage. Parents often use this to raise funds to help their children purchase a home.
One other way is a Springboard Mortgage
, this is a mortgage which uses your family or friend’s savings to buy your own house with your own mortgage. As long as repayments are made on time, the money will be returned, with interest, in three years.
What is a low income in UK?
“A household is in low income if
they live on less than 60% of the UK’s median income (a couple with no children would be in low income with an annual household income of up to £17,100 before housing costs and £14,800 after housing costs)”
For individuals, the median pay in August 2022 was £2,111 (£25332 a year). 60% of this is £1266.60 per month (£15,199 a year). If you make less than £15,199 annually you are officially classed as a low-income earner. This figure is close to a full-time worker on minimum wage.
Can I Get a Mortgage With a Low Income?
It’s certainly possible to get a loan on a low annual salary. It will be harder than if your salary was higher or your income was more straightforward. You may require assistance from a specialist mortgage broker to improve your application.
Mortgage applications require lenders to verify your employment historyA record of a borrower's employment history, which may be us..., which may include looking into your salary.
Your lender will need to evaluate and confirm your income during the loan approval stage. They must ensure you can afford the monthly payments without having trouble.
Depending on whether you’re self‑employed or working for someone else, your proof of income methods may vary depending on your income sources.
Managing payroll records could be easier with online generators such as Paystub.org, where you can choose a template, enter the required information, and download your desired document.
Do I need a larger deposit if I’m self-employed?
If you’re self-employed, then you don’t necessarily need a bigger deposit. However, as a general rule of thumb in the mortgage market, a larger deposit will likely increase the likeliness of getting more favourable rates. A good mortgage interest rate is more likely also.
Being self-employed will likely mean you have to prove consistency in your income, as it is seen as less secure than someone who works for a company on a set wage. This may mean showing the lender your income history, which can be trickier than if you were an employee.
However, if you have a low income, joint income from multiple earners can make low-deposit mortgages and larger loans possible.
Things that you may need to show are:
- credit histories – do you make repayments on time?
- financial history e.g. bank statementsA record of a borrower's financial transactions often requir... – any missed payments?
- Income documents which prove your sources of income from a legitimate source e.g. investments, rental income.
- proof of identity
- proof of addressEvidence of a borrower's current address, such as a utility ...
Lenders must do these checks to minimise the risk of money laundering and other financial crimes.
Next Steps – Mortgage With High Deposit Low Income
Are you interested in getting a mortgage on a low-income but high deposit? We have several mortgage options available for high-deposit and low-income borrowers. We work closely with our lenders to ensure that they understand your situation and will be able to provide you with an affordable mortgage option.
Feel free to contact our team of specialist brokers.