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Navigating the landscape of mortgage applications can be complex, especially when it involves income from benefits such as Universal Credit.
The acceptance criteria for pension and state benefit income as part of a mortgage application significantly vary among lenders.
Not every lender is open to considering every type of benefit, and most prefer a diverse mix of income sources to mitigate risks associated with shifts in government policies and budgetary decisions.
In this article, we will delve into the types of benefits that are most commonly recognized by mortgage lenders in the UK.
We’ll also outline the necessary documentation you’ll need to prepare for your mortgage application.
By understanding these details, you can better navigate the process and identify lenders that align with your financial situation.
How does being a Benefit Recipient Impact a Mortgage Application?
Income calculations and affordability criteria will need to be met before a mortgage offer can be made.
In addition, some benefits are considered riskier to lenders, and therefore not all lenders are prepared to accept certain benefits as income.
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Can I Obtain a Mortgage if on a Low Income and Receive Benefits?
Yes, technically neither a low income nor being a benefit recipient will stop a mortgage company from reviewing an application, however, there are other factors that will need to be met before a mortgage offer will be made.
Affordability will be a lenders main concern with a low-income applicant, therefore it is worth checking the lender’s criteria before applying, and if any doubt always seeks the advice of a specialised mortgage broker ahead of making any applications.
It is worth noting that if mortgage applications are declined, it may negatively impact your credit score, therefore advice should be sought ahead of applying for mortgages.
Which Benefits are Commonly Accepted by Lenders as Approved Income for a Mortgage Application?
Typically, the following benefits are commonly accepted:
- Attendance Allowance Benefit
- Carer’s Allowance Benefit
- Child Benefit
- Child Tax Credit Benefit
- Disability Living Allowance
- Housing Benefits
- Incapacity Benefit
- Industrial Injuries Benefit
- Maternity Allowance Benefit
- Pension Credit Benefit
- Severe Disablement Allowance
- Universal Credit
- Widow’s Pension Benefit
- Working Tax Credit Benefit
Some lenders will accept all of the above lists at 100% of the benefit value, whereas others will only allow a proportion of the allowance within the total income calculation, along with other sources of income. In addition, some benefits are time-sensitive and therefore may not be taken into account by some mortgage lenders as the eligibility will expire, such as child benefit due to the age of the children.
Lots of high streets and other lenders will accept benefit income. However, lenders can change their lending policy at any time. If you are a benefit recipient, it is always worth checking with a mortgage broker for the latest lenders who are prepared to offer mortgages to those applicants in receipt of benefits.
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Is There any Additional Help Available to Potential Mortgage Applicants on Benefits?
Yes, there are a range of government-backed schemed for specific groups of benefit recipients such as HOLD, a shared ownership scheme for people with long-term disability or if you are already a mortgage holder and are in receipt of Jobseeker’s Allowance, you may be eligible for support for mortgage interest.
Can I get a Buy-to-Let mortgage on Benefits?
Yes, some lenders will accept benefit income on a mortgage application for a buy-to-let property, however, the choice of lenders may be limited.
If you are seeking a buy-to-let property it is highly recommended that an appointment with a mortgage broker is arranged to review your personal circumstances, financial objects and the whole market of financial products to find the most appropriate mortgage available, on the best terms.
How many mortgages can I Obtain as a Benefit Recipient?
Unfortunately, due to the range of factors involved, there is not a simple answer to the mortgage value that will be offered.
How much mortgage will vary case by case, depending on other income streams, equity or assets that can be recorded as collateral for the lender, the personal circumstances of the applicant, affordability and the applicant’s credit score?
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- When was my house built?
- Buying out a sibling from an inherited house
- How long does it take to release mortgage funds?
- Does a valuation mean that a mortgage is approved?
- Mortgage lenders that accept benefits
- Can I extend my interest-only mortgage term?
What happens if Your Circumstances Change?
If you are already a mortgage holder when your circumstances change, it is always worth seeking financial advice as soon as possible and being honest with the mortgage lender.
There is often a range of options available to a lender to be able to provide assistance to the mortgage holder, depending on the nature of the change in circumstances.
Mortgage lenders that accept benefits summary
As we have discussed, there is a wide range of lenders that will often be prepared to review mortgage applications from those in receipt of benefits, however, the type of benefit accepted, and ratio taken into income calculations will vary between lenders.
It is highly recommended that benefit recipients seek the advice of a mortgage broker ahead of making any mortgage applications, to ensure that the whole of the market has been searched prior to an application, ensuring that the lender is suitable and that the best rates and terms have been found.
Brokers can also provide assistance throughout the application process, ensuring that that all terms are fully understood before an application is made, all documentation required is checked before the application submission and that each stage is followed up with the potential lender to aid with a smooth process.
Call us today on 03330 90 60 30 or feel free to contact us. One of our advisors will be happy to talk through all of your options with you.
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