I’m a mortgage broker in the UK and I’ve helped lots of people buy their own homes. A question I often get asked is, “What benefits can I use to get a mortgage?” It’s a good question and the answer could help you a lot. There are many government schemes and benefits that could make getting a mortgage easier and cheaper. Let’s look at these options together.
One of the most popular options available is the Help to Buy scheme. This scheme was introduced by the UK government to help people onto, or up, the property ladder. It’s available in England and Wales and allows people to purchase a home with just a 5% deposit. The government will then provide an additional 20% loan which can be paid back at any time (or when you sell the property). This can make it much easier to get a mortgage and help you to buy the home of your dreams.
Another great option is the Lifetime ISA. This is a tax-free savings account which allows you to save up to £4,000 each year. The government will then add an additional 25% bonusIncome received as a bonus, which may affect a borrower's ab... on top of this amount, up to a maximum of £1 ,000 per year. This money can then be used to purchase a home and you don’t need to pay any tax on the bonus.
Finally, there are some other schemes available which can help you get a mortgage but with slightly more restrictions. These include Shared OwnershipA scheme where a borrower purchases a share of a property an..., Right To Buy and Affordable Home Ownership. Each of these has its own eligibility criteria and you should check with your local authority to see if you are eligible.
What benefits can I use to get a mortgage?
Support for Mortgage Interest (SMI)
FAQs-Mortgages with Benefits in the UK
In this article, we will try to answer the question, “What benefits can I use to get a mortgage?”. As you can see there are several options available and it’s worth looking into each one to see which one is best for you. Ultimately, the best way to find out what benefits you can use is to speak to an independent financial adviser or mortgage broker who will be able to give you tailored advice based on your individual circumstances.
If you rely solely on benefits for your income, it will be difficult to get a mortgage, warns Scope, the charity that promotes equality for disabled people.
It is not your disability – or even the fact you are in receipt of benefits – that disqualifies you from eligibility for a mortgage. Indeed, the Equality Act 2010 makes it unlawful to discriminate against someone based on their disability – so, any mortgage lender who did so would be breaking the law.
If you are on any kind of welfare benefit, your difficulties boil down to the affordability test that any lender is obliged to conduct before granting you a mortgage. Since your income from benefits alone is likely to be quite severely limited, you may not pass that affordability test. If you cannot pass the test, the lender is obliged by the industry regulator, the Financial Conduct Authority (FCA), to decline your application for a mortgage.
If your regular and sustainable income from benefits is sufficient to support a mortgage – in other words, your benefits both now and into the many future years of a mortgage are enough to make the monthly repayments – there are mortgage lenders prepared to advance the necessary advance to buy your own home.
The quest is likely to be more difficult and your choice of potential lenders may be limited, so you might benefit from the help and guidance of a mortgage broker who specialises in this area of work.
It is hard to get a mortgage if you only have benefits for income, says Scope, a charity that helps people with disabilities.
You are not disqualified from getting a mortgage because you have a disability or receive benefits. The Equality Act 2010 makes it illegal to discriminate against someone because of their disability, so any mortgage lender who does this is breaking the law.
The problem is that mortgage lenders have to do an affordability test before they give you a mortgage. This means they have to check that you can afford to make the monthly repayments. If your income from benefits is low, you may not pass the test. If you don’t pass the test, the lender has to say no to your mortgage application.
However, there are some mortgage lenders who are willing to give mortgages to people who have a regular income from benefits. This means that your benefits are enough to cover the monthly repayments for the mortgage, both now and in the future.
If you are on benefits and want to get a mortgage, it is best to get help from a mortgage broker who specialises in this area. They can help you find a lender who is willing to give you a mortgage and get the best possible deal.
What benefits can I use to get a mortgage?
According to the latest information from the Chartered Accountants Benevolent Association (CABA), the principal welfare benefits currently in issue have been consolidated into a single payment known as Universal CreditA government benefit that replaces several other benefits, i.... Universal Credit replaces the following benefits:
Housing BenefitIncome received by borrowers who receive housing benefit.: This benefit provided income supportIncome received by borrowers who are on a low income. for borrowers who received housing benefits.
Income-based Jobseeker’s Allowance: This benefit supported individuals who were seeking employment and had a low income.
Income-related Employment and Support Allowance: This benefit provided income support for individuals who were unable to work due to a disability or health condition.
Income Support: This benefit was received by borrowers who were on a low income.
Working Tax Credit: This benefit provided additional financial support for individuals or families who were working but had a low income.
Child Tax Credit: This benefit provides financial support for families with children.
Please note that Universal Credit has replaced these individual benefits and is means-tested to provide comprehensive support for those on low incomes.
Universal Credit is a means-tested benefit that takes into account the amount of capital you own. If you have capital between £6,000 and £16,000, the amount of Universal Credit you receive will be reduced. If your capital exceeds £16,000, you will not be eligible for Universal Credit.
However, if you own the home you live in, you can still qualify for Universal Credit. It can be used to help pay your mortgage, including shared ownership schemes, as well as insurance, repairs, and maintenance for your home.
In addition to Universal Credit, there are other benefits that can supplement your income when applying for a mortgage. Personal Independence Payments (PIPs) are available for individuals with illnesses or disabilities that require additional care. The Care Allowance is provided to those who care for someone who is ill or disabled.
Lenders will consider the regularity of these benefits and assess your future eligibility. They will also conduct stress tests to ensure mortgage repayments remain affordable in case of changes in your circumstances or interest rate increases.
It’s important to note that individuals receiving benefits may be considered higher mortgage risks by lenders, resulting in higher interest rates. Lenders may offer a loan-to-value (LTV) ratio of 75%, meaning you would need to provide at least a 25% deposit.
If you or your partner are working while receiving benefits, mortgage lenders may consider all sources of income when assessing your application.
Please keep in mind that mortgage lending criteria and rates can vary among lenders, so it’s advisable to seek advice from a mortgage professional for personalized information and guidance.
Support for Mortgage Interest (SMI)
Support for Mortgage Interest (SMI) is a benefit provided by the Department for Work and Pensions (DWP) in the form of a loan. SMI can assist with various housing-related expenses, including mortgage payments for the home you live in (including shared ownership homes), loans to purchase additional shares in your home, legal fees, stamp dutyA tax paid by the buyer when purchasing a property., and other costs associated with buying a home. SMI can also be used to help pay off your mortgage.
It’s important to note that SMI is a loan, which means you are required to repay the amount borrowed along with interest. However, the interest charged by the DWP is typically lower than what you would pay to commercial lenders. Repayment of the SMI loan is usually required when you sell your home.
Please keep in mind that specific eligibility criteria and terms may apply to the SMI scheme. It is advisable to consult with the DWP or seek advice from a qualified professional for the most up-to-date and accurate information regarding SMI and its application process.
The above information offers a broad overview of the benefits available to those seeking to purchase a home. It is important to keep in mind that every individual’s circumstances are different, and it is advisable to seek personalised advice from a qualified professional before taking any action.
For those who wish to purchase a home, there are other options available. For example, it may be possible to obtain a mortgage from a commercial lender. However, you will need to meet their criteria in order to be eligible for a loan. Furthermore, lenders may require additional documentation such as proof of income and credit history. We would suggest you contact our team of expert mortgage brokers who can help you with your mortgage application process.
FAQs-Mortgages with Benefits in the UK
Can I count Universal Credit towards a mortgage?
Absolutely. Universal Credit is taken into account by mortgage lenders when they’re sizing up your application. However, the total capital you have might influence your Universal Credit eligibility, and by extension, your mortgage prospects.
How do benefits impact my mortgage application?
Being a recipient of benefits doesn’t bar you from securing a mortgage. Lenders will carry out an affordability check to ensure you’re up to handling the monthly mortgage payments. They’ll consider your benefit income and any other income streams during this evaluation.
What’s the advantage of using a mortgage broker if I’m on benefits?
A mortgage broker is a godsend, particularly for benefit recipients. They’re well-versed in the loan process, clued up on the eligibility criteria for various mortgage schemes, and can pinpoint specialist lenders who are more receptive to benefit-dependent applicants.
Are there any government initiatives to assist with property purchases?
Indeed, the UK government has rolled out several schemes, such as Help to Buy and Shared Ownership, aimed at helping individuals ascend the property ladder. These can be especially advantageous for those with long-term disabilities or those on disability benefits.
Can Housing Benefit be used towards my mortgage?
Housing Benefit has made way for Universal Credit, which can contribute towards housing costs, including mortgage payments for your main residence. The precise amount you’ll get hinges on your situation, including your total yearly income and any supplementary income.
What is Support for Mortgage Interest (SMI)?
SMI is a government-supported loan that can aid with mortgage interest payments for your main residence. It’s pivotal to recognise that SMI is a loan, not a benefit, and it’s repayable with interest once you sell your home.
How does my credit score influence my mortgage application?
Your credit score is pivotal in the mortgage application process. Lenders use it to gauge your creditworthiness and decide your mortgage rate. A robust credit score can lead to more favourable loan conditions, while a poor credit history might restrict your choices.
Can I obtain a mortgage if I have a long-term illness or disability?
Certainly, individuals with long-term illnesses or disabilities can apply for a mortgage. The Equality Act 2010 outlaws discrimination based on disability. Lenders will scrutinise your total income, including disability benefits and any other income, to assess your borrowing capacity.
What does the loan process entail for someone on benefits?
The loan process for someone on benefits involves several stages, including an affordability calculatorA tool used by mortgage lenders to calculate how much a borr..., credit report scrutiny, and an evaluation of all income types. Mortgage brokers and loan specialists can offer guidance throughout this journey.
Are there specific mortgage schemes for disabled individuals?
While there aren’t exclusive mortgage schemes for disabled individuals, many government initiatives and specialist lenders present options that accommodate the needs of those with disabilities. These include reduced deposit requirements and the inclusion of disability benefits as part of your income.
What should I ponder before applying for a mortgage on benefits?
Prior to applying for a mortgage on benefits, it’s crucial to conduct an affordability check using a mortgage calculator, inspect your credit file for any issues, and consult with a mortgage broker to grasp your loan entitlement and the borrowing avenues open to you.
How can I bolster my chances of securing a mortgage on benefits?
To enhance your chances of securing a mortgage on benefits, ensure you have a stable benefit income, uphold a sound credit history, and consider additional income sources like rental income or child benefit. Collaborating with a mortgage broker can also streamline the application process. Bear in mind, that every financial institution has its own set of lending criteria, and it’s wise to seek tailored advice from a mortgage professional to better understand your options.