Single parent affordability
One of the main things a mortgage lender will assess prior to all mortgage lending is checking an applicant’s affordability. They will use an applicant’s income and outgoings to calculate how much they are willing to lend. This can cause difficulties with single parents as the mortgage will be assessed on one person’s wage only and perhaps they have a lower income due to childcare responsibilities and only being able to work part-time hours. Personal finances could be more complicated as there may be various income streams such as employment income, tax credits, child benefits and maintenance payments.
It is a good idea to go through your occurring monthly outgoings to make adjustments and decrease your non-essential spending to try and increase your chances of being accepted for a bigger loan to value. This will help enhance your disposable income and you may find that it’ll help you save towards a bigger deposit. Any outstanding credit cards, car loans or any type of loans could have an impact on your affordability and could mean you’ll be entitled to borrow less, so if possible, try and clear those loans down.
Saving for a deposit and available help
Trying to save for a deposit as a single parent juggling bills and taking care of children, especially when renting, can be extremely difficult. Most lenders require 5% to 10% deposit but depending on your affordability, purchase price and other factors, you may be required to provide a bigger deposit.
If you are struggling to save for a deposit for a mortgage, there are some ways in which help could be available to you:
- Gifted deposits are usually accepted by most lenders, especially if it’s from a close relative. The person gifting the deposit will be required to sign a letter to confirm that are providing the deposit as a gift and does not expect it to be paid back or have any involvement in the property. If you are able to show that you have some deposit from personal savings, this may help improve your application to the lender.
- Guarantor mortgages usually allow a parent or a close family member to take some of the risks of a mortgage loan by acting as a guarantor and putting up assets as a security for your mortgage loan. The collateral they usually have to put up is savings or their own property. They are required to sign a legal agreement to cover mortgage repayments should the borrower falls behind. The guarantor will not own a share in the house or be named on the title deeds.
- Family springboard mortgage is when a family member puts a percentage of the property price into a savings account that is held with the lender for a specified period of time, usually being a few years. Interest is earned on the amount in the savings account. After a few years, equity will have built up in the property from monthly mortgage repayments and all of the money in the savings account is returned to the family member after the agreed period has ended, including the interest earned. It is not possible to access the money that is in the savings account before the agreed period has ended, even for emergencies.
- Help to buy is a government scheme that is eligible on new builds only for first-time buyers or an existing homeowner who wish to sell their home to buy a new built house. You pay a deposit of at least 5% whilst borrowing up to 20% of the cost of a new built home (up to 40% in London boroughs) from the government to add to your deposit and getting a mortgage for the remainder. This share the government has loaned you will need to be paid back when you come to sell the property or at the end of term and how much you pay back depends on the properties current market value, not the original purchase amount. If you decide to keep the property, you have the option to pay the government back in lump sums or to keep the loan and make interest-only payments after the initial 5 years, which are interest-free. The property price must not be more than £600,000. The current scheme will end in February 2021, but the government has confirmed they will extend this scheme till March 2023.
- Shared Ownership allows someone to part-buy, part-rent a home from housing association (arranged by a local Help to Buy agent) and the share you can initially purchase is usually between 25% – 75% of the property price. You are given the option later on to purchase more of a share of the property from the housing association until you own the full 100% and this process is called ‘staircasing’. You provide a deposit and take out a mortgage for your share of the property and rent is paid on the remainder to the housing association.
You will find with any type of mortgage applicant; lenders will want to check their credit report. Lenders use this as a way to assess a borrower’s creditworthiness. Having bad credit doesn’t mean you will automatically be denied of a mortgage loan, but it will depend on the circumstances and how severe the credit issue was. Checking your credit report before applying for a mortgage is important so that you can make improvements or changes if there are any errors before applying with the lender.
If you are unsure of where to begin looking for a mortgage loan, then speak to a mortgage broker. Using their experience and expertise, they will be able to guide you to the right lenders who are more understanding of single parent mortgage applicants. A whole of market broker who is not tied to any particular lender, will be able to find you a deal that is best for your own personal circumstances.
Can a single parent get help with a mortgage?
Yes! There are many different types of mortgages available for people like yourself. Some may require no down payment, while others do. Speak to a professional about what would work best for you.
How does bad credit affect mortgage loans for single parents?
As with every other mortgage application in the UK, bad credit history is not considered good for lenders. However, mortgage providers can take poor credit rating issues seriously because of the risk involved in delayed mortgage payments. Having an adverse credit score could result in rejection of the loan application, so its always better to contact a mortgage advisor before going to specialist lenders. It is worth noting that every bank has different lending criteria when it comes to mortgage affordability.
Can I use child benefits to aid my single parent mortgage application?
Yes, many street lenders allow child benefit payments to be considered while accessing an applicant’s affordability. Apart from the child benefit payments, there are different forms of income like maintenance payments, child tax credits etc., that may be considered by a lender. It is important to contact specialist mortgage brokers before starting your mortgage application process.
What additional income sources will lenders accept for single parents?
The major forms of income that lenders may accept from single parents are child benefit payments, tax credits and maintenance funds recieved from the last ex-partner.
Are there mortgage loans for single mothers?
Yes, many street lenders could approve a loan for a single mother, but you may need to contact a broker for expert mortgage advice.
How can a single parent buy a house?
There are various ways to purchase property as a single parent, including buying outright, taking out a home equity line of credit, using a bridging finance scheme or even through a shared ownership plan or joint mortgage with your current partner.
What government programs are available for single mothers?
In addition to housing support offered by local councils, some financial institutions offer special schemes designed specifically for single parents. These include: Help To Buy Scheme, which offers first-time buyers up to 5% deposit assistance, Equity Loan Guarantee Scheme, which provides 100% guarantee against defaulting on a newly built property and Shared Ownership Schemes, which allows couples to share one property between them.
Can a single mum get a council house?
Yes, a single mum could get a council home. In the UK, single-parent families with dependent children are considered as a high priority need. Due to this, the UK government has launched various schemes for single parents.