Despite being more likely to be furloughed and with less budget to play with, workers on a low income or earning the UK minimum wage aren’t excluded from homeownership.
This guide has been written to help anyone looking for a mortgage on a low income.
Whether you’re on a trainee’s salary, working part-time, supplementing your income with benefits or receiving an income from the furlough scheme, there could still be several affordable options for you to consider.
Here’s what’s answered in this guide:
- What is low income in the UK?
- Are low wage workers excluded from buying a home?
- Can I get a mortgage with my low income?
- How much can I borrow on a mortgage if I have a low income?
- Can I get a mortgage earning minimum wage in the UK?
- Can I get a mortgage on my own if I have a low income?
- How can I get a bigger mortgage with a low income?
- Can benefits supplement wages on a mortgage application?
- Can I afford a mortgage with a low income?
- Can I get a mortgage with low income and bad credit?
- How much deposit do I need for a mortgage with a low income?
- How can I boost my deposit for a mortgage with a low income?
- How can I get a mortgage with a low income in the UK?
- Mortgages for low income: FAQs
What is low income in the UK?Low income doesn’t just apply to minimum wage workers - many apprentices, casual, or part-time staff including teachers, receive a low income.
In the UK, low pay is defined as the value that is two-thirds of median hourly earnings. For example, the median hourly earnings for all employees in 2020 was £13.68, therefore low-pay employees are anyone earning below two-thirds of £13.68, which is £9.12.
High-pay employees are those earning anything above 1.5 times £13.68 an hour, which is £20.52
Are low wage workers excluded from buying a home?In April 2020, The Low Pay Commission estimated that around 7% of UK workers were paid at or below the minimum wage. That’s 2 million workers earning a low income, each of whom may be eligible to apply for a mortgage to buy a home.
The problem is, many people feel excluded from homeownership because of rising property prices, large deposit requirements or minimum income thresholds.
According to a report by Nationwide Building Society, one in four say Covid-19 has further damaged their homeownership aspirations while 68% of renters think they'll never afford to buy a home.
Can I get a mortgage with my low income?Having a lower income can reduce your borrowing power but there are lenders in the UK that consider an application even if the borrower earns less than £15,000 per year. If you have an income that derives from:
- Trainee salary
- Disability allowances
Lenders don’t solely focus on income but it is an important factor, after all, a lender will want to feel confident that you can repay your loan on time and in full.
A lower income could prevent you from being able to do this though ultimately, lenders will be concerned with your affordability for the size of the loan you are applying for.
For example, a lender is highly unlikely to approve a £500,000 mortgage over 25 years with a 5% deposit if you’re earning £15,000 a year (or £1,250 a month).
The mortgage repayments would likely equate to £2,300+ a month and when taking into account other outgoings like utility bills, food and car expenses, that’s not going to be financially feasible.
However, a mortgage of £100,000 with that same salary and a bigger deposit could be deemed affordable, depending on the choice of the lender and your other circumstances, like the level of debt you have or the dependency of your income.
How much can I borrow on a mortgage if I have a low income?The average first-time buyer property costs 5.6 times the average income according to Nationwide's data but usually, mortgage lenders use income multiples of 4.5 - 6 to work out the maximum amount they can lend to you.
That means that your annual gross income (your income before tax) may be multiplied by 4.5 to determine how much you can borrow.
Borrowers with ‘good’ affordability i.e. little to no bad credit, a big deposit and a high income are more likely to be offered mortgage products with income multiples of 5 and upwards as they present less risk to a lender for defaulting (missing mortgage repayments).
The tables below provide the maximum loan amount based solely on income but remember, the amount you can borrow isn’t just reliant on your income. To find out how much you could borrow based on your circumstances as a whole, ask a trusted mortgage broker.
Income multiples used by UK mortgage lenders
Annual gross income
Can I get a mortgage earning minimum wage in the UK?It’s not impossible and some lenders provide mortgages to people earning at or below the minimum wage. If you’re applying alone, your borrowing may be limited, though government schemes like Shared ownership (part buy/part rent) might be worth considering if you’re keen to buy a bigger or more expensive property.
The table below represents a hypothetical income for an employee working 48 hours a week, earning minimum wage. However, these figures won’t be representative of everyone and not everyone works 48 hours a week. Ask a mortgage broker to calculate how much you could borrow based on your hours and income here.
Minimum wage age bracket
Minimum wage 2021
Annual gross income if working 48 hours a week
Mortgage amount with an income multiple of 4.5
23 and over
Can I get a mortgage on my own if I have a low income?While a single person’s income might not be enough to get a larger mortgage with a low income, it can be enough to qualify for modest mortgages, whether that be for a first-time home, a cheap buy-to-let investment or to downsize during retirement.
Your chances of getting a mortgage on a low income as a single applicant may be greater if:
- The property you’re buying is cheap
- You have a ‘good’ credit rating
- The cost of your outgoings is low
- You have a deposit larger than 5%
- You have equity to use as security
- You have a guarantor who can use their property or savings as security
How can I get a bigger mortgage with a low income?
Get a mortgage with another person (or three!)Up to four people can apply for a mortgage with some lenders, meaning that four incomes could be included in the calculations for the maximum loan.
That could help you borrow more.
You’ll each need to prove your income and affordability in the usual ways, i.e, bank statements, proof of income and credit report but if you qualify, borrowing on a mortgage with someone else (or a few other people) could help you buy a bigger and more expensive property.
Even by borrowing with one additional person, you could potentially double your borrowing power. Some people prefer to get a mortgage with a family member while others buy a property with a close friend, a significant other or a business partner.
Can benefits supplement wages on a mortgage application?Yes, there are a handful of lenders that allow income from benefits to be included for mortgage affordability calculations, though most prefer applicants to be in employment as opposed to having an income solely derived from benefits.
Receiving financial help isn’t necessarily a bad thing on a mortgage application though and depending on your circumstances, it may be worth checking to see if you’re eligible for any payments that could help to top up your low income. In some instances, this might even be able to help you qualify for a larger loan, though that will depend on the lender’s criteria and what they’ll accept as income.
What benefits can be included on a mortgage application for income?
- Universal Credit
- Child tax credit
- Working tax credit
- Child benefit
- Disability Living Allowance (DLA)
- Industrial Injuries Benefit (IIB)
- Incapacity benefit (IB)
- Attendance Allowance
- Pension Credit
- Maternity Allowance
- Severe Disablement Allowance
- Widow’s Pension
- Carer’s Allowance
Can I afford a mortgage with a low income?Lenders want to be sure that you’ll repay your mortgage on time and in full, so it’s in their interest to provide a loan that is manageable based on your circumstances.
That’s why lenders look at other factors that affect your ability to repay a mortgage like your:
- Deposit size (The bigger the deposit the better)
- Dependency of income (self-employed low-income workers can be seen as higher risk borrowers)
- Credit score (The higher the credit score the better)
- Credit history (A report with little to no debt or missed payments is preferred by most lenders)
- Age (Some lenders cap the maximum loan size for borrowers approaching retirement)
- The type of property you want to buy (If it’s made from non-standard building materials, lenders may be hesitant about lending to you without evidence that your income could cover unexpected costly repairs i.e. your thatched roof needing a leak fixed or your stain glass windows needing to be replaced.
To do this, they’ll need your:
- ID (copy of your passport or driver’s license)
- 3 months bank statements
- 3 months payslips or at least 1 year of SA302 accounts if you’re self-employed
- Proof of any benefits received
- Proof of deposit
- Proof of current address i.e. utility bill
- Credit report
Can I get a mortgage with low income and bad credit?There are niche lenders in the UK that accept borrowers with credit issues, from CCJs, IVAs and even bankruptcy so it is possible. You’ll need to find a mortgage lender that is open to lending to ‘higher risk’ borrowers.
Usually, though not always, the more severe and recent the bad credit, the smaller choice of lenders you’ll have. You’ll probably be charged a higher interest rate too but again, that will depend on your affordability as a whole.
If you can prove that your income is enough to pay a mortgage, repay your other debts (if any) and any outgoings you have, your chances of being accepted for a mortgage with bad credit and a low income will be higher.
Most lenders look at debt-to-income as a ratio. This is essentially a calculation whereby the amount of debt you have is divided by the amount of income you have and then multiplied by 100.
(total monthly debt payments) £100 / (total gross monthly income) £1,300 ( x 100) =7.69%
The lower the debt-to-income ratio, the better as this suggests your debt is at an affordable level.
Never apply for a mortgage without checking if you’re eligibleIf it turns out you’re not, you could get rejected for a mortgage and this shows up on your credit report for up to six years. This can then affect your ability to get approved by other lenders in the future so ask a mortgage broker to show you the lenders that are more likely to accept you.
They can take your details and some information about your income, credit history and general circumstances and compare the available options out there.
It’s a quick process for a mortgage broker who will know where to look, what the most competitive rates are and how to secure you the right deal.
How much deposit do I need for a mortgage with a low income?The minimum deposit you’ll need is 5%, though some lenders provide guarantor mortgages requiring a zero cash deposit which can be helpful if you don’t have the means or wiggle room to save.
Instead, these types of mortgages require either a guarantor’s property or savings to be held as security for the loan.
They’re riskier than a standard mortgage with a deposit because if you were to become unable to repay your mortgage, your guarantor would have to make the repayments for you. In the worst-case scenario, your guarantor could even lose their home.
5% deposit mortgages are available with a range of lenders in the UK, though having a larger deposit, if at all possible, might help you to access cheaper mortgages, as well as reduce your risk of falling into negative equity.
Is it better to have a bigger deposit?If you buy a house now worth £100,000 with a 5% deposit (£5,000), you’ll own 5% of the property while the bank technically has a hold on the other 95% that they’ve provided a mortgage for.
House prices have risen 10% in some areas in 2021 but if they were to fall by that same amount, your house would be worth £90,000. You would still owe your lender £95,000, so your house would be worth less than the mortgage you originally took out for it.
If you became unable to pay your mortgage and had to sell the house, you’d still owe the lender money after giving them all the proceeds of the sale.
Low-income high deposit mortgagesIf you have a bigger deposit, your risk of falling into negative equity decreases because you’d own a bigger stake in the property upfront.
In this same scenario, if you had had a 10% deposit (£10,000) and house prices dropped by 10%, you’d end up with zero equity, as opposed to negative equity.
If you had a 15% deposit and prices dropped by 10%, you’d have 5% equity.
How can I boost my deposit for a mortgage with a low income?
Get a Help to Buy: Equity loanHelp to Buy: Equity loan offers eligible applicants an interest-free, five-year loan. The idea is that the buyer (you) needs a 5% deposit of their own and then the government provides up to 20% of a property's purchase prices as a loan.
Having a larger deposit puts you in a better position with lenders because they’re more likely to offer products with cheaper interest rates, which makes your repayments cheaper.
Ask for a gifted depositYou never know until you ask. It can feel daunting asking a family member for a deposit but they might even be happy to help or already thinking about gifting you a sum towards a deposit.
If Mum/Dad or perhaps a grandparent do agree to give you some money towards the purchase of a house, they’ll need to sign a gifted deposit letter which is an agreement that declares the money they are gifting to you is a gift and there is no expectation to repay it.
A gifted deposit doesn’t give the giftor any ownership of the home either, so both parties must be aware of what’s involved before agreeing.
Ask a family member to use their home as securityThis would require no deposit from you but your guarantor would be required to use their home as security for your mortgage.
If you were to become unable to repay your mortgage, they would be responsible for making your repayments, and in the worst-case scenario, their home could be repossessed to settle your arrears and clear your mortgage balance.
Ask a family member to use their savings to offset the riskThis works similarly to a mortgage that uses another property as security but instead, the guarantor’s savings are held in a special savings account as security for the mortgage.
Depending on the lender and their terms and conditions, your guarantor could build interest on the savings while they’re held.
Some agreements allow for the guarantor to be released from the contract when the borrower owes less than 80% of the property’s value but again, this number can vary, and some lenders require their borrowers to have paid off a larger portion of their loan.
Sell assets to get a deposit for a low-income mortgageIf you’ve got a quirky collection of Beetle’s memorabilia collecting dust in an attic, or a car that could be swapped for public transport, you could earn yourself a deposit by selling these and similar assets either online or at public auction.
Designer clothes that have lingered in your wardrobe can be sold in exchange for cash with apps like Shpock, Vinted and eBay. Clearing your wardrobe could help kickstart your deposit or give you the extra boost needed to qualify for a mortgage with a low income.
Most lenders will accept income made from the sale of assets such as a deposit but keep a record of funds made so that you can prove the money was made legally for anti-laundering purposes.
Can I use a credit card to pay for my mortgage deposit?It’s rare for a mortgage lender to accept a deposit from a credit card but not impossible. Think very carefully before taking out debt to fund a mortgage deposit because ultimately, if you do manage to find one of the very few lenders that will accept it, you’ll have two streams of debt to manage.
A mortgage on its own is a big financial commitment and while saving a deposit can be frustrating, it reduces the amount you need to borrow on a mortgage, reducing your debt.
Can I use a gambling win to supplement a low income for a mortgage?A big betting win won’t be accepted as a deposit for most lenders but there is a handful that will allow it under the right circumstances.
Most high-street banks and lenders prefer their borrowers to avoid gambling and won’t accept funds from a big win as a deposit. Some lenders don’t accept borrowers that gamble at all because their criteria forbid it.
If you have come into money because of a lucky streak in a casino or a big win on boxing, investing it into property might be possible with the right lender. To find a lender that will allow you to deposit cash from a win as a mortgage deposit, contact a mortgage broker and explain the situation. They’ll work hard to find you the solution you need to buy a home.
How can I get a mortgage with a low income in the UK?
Compare affordable homes schemes that could help you get a mortgage on a low incomeAs well as Help to Buy: Equity Loan, other government schemes can help people buy a home, including Shared Ownership and Right to Buy.
Each of these schemes is designed to help people buy a property without the need for a hefty deposit or a high income.
Shared Ownership, for example, could allow you to buy a share of a home while paying capped rent on the portion you don’t yet own. Additional shares can be purchased as and when it is affordable for you to do so, either by staircasing 5% a year or by remortgaging in the future to buy a larger portion of the property.
Then there’s Right to Buy, which can be a great opportunity for tenants in council properties, looking to buy their current home. If you’ve lived in your council house or flat for more than 3 years, you’re over 18 and you seek permission from your local council, you could be eligible to buy your council property at a reduced price, with the discount starting at 35% off the market value.
Ask a mortgage broker for their helpAdvice about your next steps from someone who knows the mortgage process and where to look for the cheapest deals can be a real time saver.
Comparison sites are handy for a quick glimpse but the interest rates displayed might not always represent the true and final cost that you’ll pay.
That’s because the amount of interest you’re charged for a mortgage and the terms under which you sign the agreement will be offered to you based on your specific circumstances. To find out which lenders accept low-income applicants, call, email or pop in to see a mortgage broker. Once they know a little bit about you and have listened to what it is you need from your mortgage, they can quickly search the market and show you who offers what and under what terms.
Low-income mortgages: FAQs
Can I get a mortgage if I’ve received income from the furlough scheme?It may still be possible to get a house if you’ve been furloughed in 2020/2021 as many lenders in the UK are accepting income from furlough.
That being said, the furlough scheme ends in September 2021. If you’re due to return to work soon and you have proof of a return to work date, a lender may be more likely to approve your mortgage application. Without this, a lender may question how you’ll repay your mortgage once the furlough scheme finishes and your income drops.
If you’ve already gone back to work, getting a mortgage after furlough should be easier, assuming you meet your chosen lender’s eligibility criteria.
What is the minimum income to get a mortgage in the UK?Some lenders do have minimum income requirements but this will vary heavily depending on what lender you’re applying for a mortgage with as well as your circumstances. Not all lenders have strict income requirements and many can be accommodating to those on lower incomes, even if it’s minimum wage.
It’s your circumstances as a whole that impact your ability to get approved for a mortgage, so if your income allows you to repay a mortgage while also paying any other financial commitments you have, the likelihood of approval could be greater.
Can I get a mortgage on a pensioner’s income?Mortgages for older borrowers do exist and if you have equity in another property, savings or other capital that can be used as security, it can be easier to meet the affordability requirements of banks and lenders.
Retired borrowers usually have a reduced income in comparison to employed applicants and some lenders won’t lend under those circumstances because the risk of the loan being repaid in full and on time is heightened.
A broker can help you navigate the mortgage market and find the lenders willing to provide loans to borrowers approaching or in retirement. Getting a mortgage may be possible, it’s all about finding a relevant lender with criteria that is open to your circumstances.