Mortgage for Low Income Earners

Getting a mortgage as a low-income earner is not easy in the UK. However, it can be done if you are willing to put in the effort and do your research. The first step is to understand the criteria required by lenders when considering a mortgage application from a low-income earner.

Some lenders may not approve your application as low-wage workers are seen as a higher risk. However, other lenders may be more flexible and willing to consider your application if you can demonstrate that you have the means to make regular payments on the loan.

Additionally, government schemes such as Help to Buy offer support for those looking to get on the property ladder with a low income. These schemes provide assistance with deposits, closing costs and other aspects of the mortgage process.

Other options for low-income earners include getting a co-signer or guarantorA person who guarantees to repay a mortgage if the borrower ... on loan. This means that someone else will be responsible for paying off the mortgage if you cannot. A guarantor may also be able to help lower the interest rate and make monthly payments more manageable.

Finally, it is essential to remember that there are other ways of achieving homeownership in the United Kingdom.

In this article, we will try to answer frequently asked questions on the topic, such as 

Can I get a mortgage on a low income?

How to get a mortgage on a low income?

How to Obtain a Mortgage on a Low Income as a Self-Employed Individual or Contractor?

What are some government schemes that can help a low-wage earner to buy a property in the UK?

Exploring Mortgages Statistics for people with low incomes 

As a mortgage brokerage firm, we understand the unique challenges faced by low-income earners in the UK. According to recent statistics, the proportion of low-paid employee jobs, based on hourly pay, fell to 14.2% in 2021, which is the lowest it’s been since the series began in 1997. However, the proportion of high-paid employee jobs also decreased by 0.7 percentage points in the year to 24.5% in 2021. While hourly pay among the bottom fifth and 10th percentiles for full-time and part-time jobs have increased by more than 5% compared with 2020, hourly pay among the bottom fifth percentile of part-time jobs is still down 6.7% compared with 2019. As a result, low-income earners may face difficulties when it comes to securing a mortgage, which is where our services as a mortgage broker can help. We can provide expert advice and guidance to help low-income earners navigate the mortgage process and find the best deals available to them.

Can you get a mortgage on low income?

It is often thought that low-income earners aren’t able to take out a mortgage loan but this isn’t necessarily true. Although it may be more difficult, it isn’t entirely impossible. Even someone who is unemployed but receiving government benefits or a pension could find themselves able to take out a mortgage. Some lenders may impose a minimum incomeThe minimum income required for a borrower to be eligible fo... requirement to accept an application but every lender is different and their requirements can vary.

As part of their assessment of an applicant, lenders look at how affordable the added expense of monthly mortgage payments is before agreeing to a mortgage loan. They will compare your income to your outgoings to check that you can comfortably cover your bills, living costs and mortgage repayments and make an allowance to ensure you can still cover your mortgage repayments should interest rates increase or you have a change in circumstances. So even for someone who is a high earner but has a lot of monthly outgoings, they could find themselves struggling to be accepted for a mortgage loan.

As a mortgage broker, we can help you to get a mortgage with your low wages. Feel free to contact us.

Way to increase your chances of getting a mortgage

Reducing your outgoings before applying for a mortgage can help increase your chances of being accepted for a mortgage. Lower monthly outgoings can increase your affordability and how much the lender would be willing to lend to you. If it’s possible, finding a property that is less expensive may also increase your chances of being accepted.

Most lenders require a minimum of a 5% deposit, but you can increase your chances of being accepted for a mortgage loan if you can provide a higher deposit. Having a higher deposit may also unlock better deals and lower interest rates. It can be difficult to save up for a deposit, especially if you didn’t start saving early but there are schemes such as the government’s Help to Buy scheme which can help boost your deposit by borrowing from the government. This scheme is restricted to new build properties only.

Another way to increase your chances of being accepted for a mortgage loan is to check your credit report. Having a good credit score lowers your risk to the lender and if you have a good credit history showing you have previously made payments on time, this can indicate to them that you are likely to be a responsible borrower. If you have a lack of financial history due to not having any previous borrowing, this can count against you so it might be a good idea to take time to build up your credit score before applying for a mortgage. Having a bad credit history doesn’t necessarily mean you will be denied completely for a mortgage loan but you may be limited to the amount of lenders willing to lend to you and they may charge a higher interest rate to offset the increased risk or ask for a higher deposit.

How to get a mortgage on a low income?

Getting a mortgage on a low income can be challenging, but there are several steps you can take to increase your chances of approval. Here are some tips:

Improve your credit score

A good credit score is important for mortgage approval. You can improve your score by paying bills on time, reducing your debt, and avoiding unnecessary credit applications.

Save for a larger deposit

A larger deposit can help you secure a mortgage on a low income. Aim for a deposit of at least 10-20% of the property value.

Consider government schemes

Look into government schemes like Help to Buy EquityThe difference between the value of the property and the amo... Loan, Shared OwnershipA scheme where a borrower purchases a share of a property an..., or Right to BuyThe right of council tenants to purchase their council., which can provide financial assistance and reduce deposit requirements.

Seek professional advice

A mortgage broker can help you find lenders that offer mortgages to low-income earners and advise you on the best options for your circumstances.

Reduce your debt-to-income ratio

Lenders will assess your debt-to-income ratio (DTI) when you apply for a mortgage. You can improve your DTI by reducing your debt and increasing your income.

Consider a joint mortgage

A joint mortgage with a partner or family member can increase your income and improve your chances of approval.

Be realistic about the property price

Be realistic about the price of the property you can afford based on your income and expenses. Don’t overstretch your finances to buy a property that may be difficult to maintain in the long run.

Remember, every lender has different criteria, so it’s important to do your research and seek professional advice to find the best mortgage option for your circumstances.

How to Obtain a Mortgage on a Low Income as a Self-Employed Individual or Contractor

If you are self-employed or a contractor and on a low income, you may find it more difficult to obtain a mortgage, especially if there are dramatic changes in your earnings year on year. Often, they will require tax returns over a two to three-year period and may ask for future projections or contracts so they are reassured your earnings will continue.

If you are self-employed or a contractor, there are some steps you can take to increase your chances of being accepted for a mortgage loan. Firstly, ensure your accounts and tax returns are up to date and that you can demonstrate a consistent income over the last few years. Some lenders may allow for one year’s worth of accounts whilst others may require more so it’s important to check with the lender what they require.

You may also want to consider getting an accountant to help you prepare your tax returns and accounts as this can make the process smoother for both you and the lender. Some lenders may also require proof of future income, so if you have contracts in place, it’s a good idea to provide those too. Finally, having a higher deposit could also increase your chances of being accepted, so if you can afford to put down a larger deposit, then this could improve your chances.

What are some government schemes that can help a low-wage earner to buy a property in the UK?

There are several government schemes in the UK that can help low-wage earners buy a property. These include:

Help to Buy Equity Loan

A scheme where the government lends up to 20% of the cost of a new build home (40% in London) to eligible buyers, allowing them to purchase with a smaller deposit.

Shared Ownership

This scheme allows buyers to purchase a share (between 25% and 75%) of a property and pay rent on the remaining share. The buyer can then increase their share over time, a process known as staircasingThe process of buying additional shares in a shared ownershi....

Rent to Buy 

This scheme allows tenants to rent a newly built home at a discounted rate for a set period (usually between 5 and 20 years) before having the option to buy the property outright.

Right to Buy

A scheme that allows eligible council or housing association tenants to purchase the property they currently live in at a discounted price.

First Homes

A scheme that provides newly built homes at a discount of at least 30% to first-time buyers, local residents, and key workers.

These schemes can help low-wage earners overcome the barriers to property ownership, such as the high deposit requirements and unaffordable property prices. It’s important to note that eligibility criteria and availability of these schemes can vary depending on location and other factors, so it’s essential to do research and seek advice from a professional mortgage advisor.

Next steps

Applying for a mortgage before your application is ready can hinder your future chances of applying for a loan. That’s because if you are rejected by a lender, this can have an impact on your credit score. It’s a good idea to seek professional advice first from a mortgage broker, who can use their experience and expertise to analyse your application before you apply, help you strengthen your application and find you the most appropriate lender and deal for your personal circumstances.

FAQs – Mortgage for Low-Income Earners

Can low-income earners get a mortgage in the UK?

Yes, low-income earners can get a mortgage in the UK. However, they may face more challenges when it comes to securing a mortgage, such as stricter affordability criteria, lower loan-to-value ratios, and limited mortgage product options.

What can I do to improve my chances of getting a mortgage on a low income?

Some ways to improve your chances of getting a mortgage on a low income include improving your credit score, reducing your debt-to-income ratio, saving for a larger deposit, and seeking professional advice from a mortgage broker.

Are there any government schemes to help low-income earners get a mortgage in the UK?

Yes, there are several government schemes in the UK that can help low-income earners get a mortgage, such as Help to Buy Equity Loan, Shared Ownership, and Right to Buy. These schemes provide financial assistance, reduced deposit requirements, and other incentives to help low-income earners buy a property.

Can I use my benefits as income for a mortgage application?

Some lenders may consider certain benefits as income for mortgage applications, such as child tax creditsIncome received by borrowers in the form of child tax credit..., working tax creditsA government benefit that is paid to people who are working ..., or disability living allowance. However, it’s important to check with the lender first and seek advice from a professional mortgage advisor.

What should I do if I’m struggling to make mortgage payments on a low income?

If you’re struggling to make mortgage payments on a low income, you should contact your lender as soon as possible to discuss your options. They may be able to offer temporary payment arrangements, such as a payment holiday, or provide advice on how to manage your finances. It’s important to seek professional advice and avoid falling behind on payments, as this could lead to the repossession of your property.