While applying for a home loan using maintenance as income can make the process slightly more complicated, many lenders have adopted a more flexible approach towards such applicants.
So whether you’re looking for a fresh start in a new property or want to continue upkeeping the family home yourself, this short guide explains the different variables which could impact your mortgage eligibility where maintenance income is concerned.
Do lenders count maintenance income towards a mortgage application?Every lender works to their own eligibility criteria and will have a different stance on whether they are willing to consider applicants receiving maintenance income, and under what terms.
Some providers are happy to consider applicants whose maintenance income accounts for all or most of their earnings, whereas others will only factor in a portion of them. Others are unwilling to accept any maintenance payments as a form of income.
Will lenders consider 100% maintenance income for a mortgage?If your sole income is made up of maintenance payments, you may find it more difficult to find a willing lender.
While there are providers out there who will consider an application based on 100% maintenance income, subject to additional eligibility requirements, a smaller lender pool is likely to impact how favourable the interest rates you’re offered are.
In most instances, mortgage providers will take 50 - 60% of the child maintenance into account as a secondary source of income to supplement other earnings you receive from employment. They will use these figures to calculate your affordability and how much they are willing to lend.
What caveats are attached to income maintenance mortgages?Lenders that welcome maintenance income applicants may have additional stipulations attached to their terms. For example, you may also have to meet one or more of the following conditions to be eligible:
- There are five or more years remaining on your agreement.
- There is a court order, Child Support Agency (CSA) assessment or Child Maintenance Service (CMS) arrangement in place.
- You have bank statements as proof of historic payments.
- You can provide evidence of continued payments throughout the term of the mortgage.
There are no hard and fast rules when it comes to what is and isn’t acceptable to mortgage providers with regards to
maintenance income; it is very much down to the individual lender, and your personal circumstances.
If you have complex income arrangements, it’s always a good idea to have a chat with a broker before submitting a mortgage application. Our team of experts are accomplished at dealing with complex cases, and will only recommend suitable lenders that match your requirements.
Do you need a court order to prove maintenance income for a mortgage?If you’re receiving child support, this will either be through an informal arrangement between you and your ex-partner, or awarded by court order or the Child Maintenance Service (CMS).
If you were previously married, the chances are that child maintenance payments were included in the court order alongside other proceedings during the divorce. Having a formal arrangement in place will typically improve the choice of lender that is willing to consider income maintenance in a mortgage application.
If you’re unmarried and / or decided on an informal arrangement regarding maintenance payments with your ex-partner, it can be more difficult to provide lenders with adequate proof of this ongoing source of income. Some providers may ask you to make further arrangements via the CMS in order to fulfill their requirements.
That being said, some lenders are happy to accept a track record of payments, evidenced through bank statements. If an informal arrangement is working for you, a broker can suggest which lenders are the most flexible when it comes to submitting proof of income.
What other factors affect child maintenance mortgage applications?While it’s important to find a lender that is willing to accept the required amounts of maintenance payments as income, you will also have to prove that your affordability will be sufficient for the duration of the mortgage term.
Most maintenance ceases when a child turns 16, or age 20 if they pursue full-time further education. This means the age of your child(ren) may be taken into account, alongside any additional income you receive from employment, to assess the longevity of your financial arrangement.
Given that the average mortgage term is 25 - 30 years, you may also be asked to provide a repayment plan, or evidence from an employer if your working arrangement is set to change in the future (i.e. an agreement to increase your hours when your child(ren) starts school full time).
Deposit requirements for maintenance income mortgagesThe standard loan-to-value (LTV) for a residential mortgage is 85 - 90%, which translates to 10 - 15% of the property’s value as deposit.
If you’re using child maintenance as income this will not generally affect lender deposit requirements, but if your affordability is low or you pose a risk in other areas (i.e. a history of bad credit), you may be asked for a larger down payment to balance out the risk.
Generally speaking, as is the case with every mortgage, the higher deposit you can save, the better. Not only will you own more equity in the property from the off, this is likely to give you access to a greater choice of lenders and therefore more competitive rates.
If you’re a first-time buyer, you may be eligible to apply through an affordable housing scheme. If you’re struggling to save a deposit, why not speak to a broker and find out if you can take advantage of the Help to Buy Equity Loan?
Low income maintenance income mortgagesIncome is always a big factor when it comes to getting a mortgage, as it helps lenders calculate your affordability and how much you can borrow.
Many people believe that having low earnings, especially one made up of maintenance income, will hinder their application, but that’s not necessarily true.
There are lenders and brokers, such as ourselves, who specialise in low-income mortgages and are happy to consider different types of financial sources when assessing applications.
So even if you’re receiving maintenance income alongside a low-income job, provided you can demonstrate your long-term affordability and the circumstances are right, there’s no reason you shouldn’t be considered.
Bad credit and maintenance income mortgagesIt’s true that having bad credit can limit the number of lenders who are willing to consider you for a mortgage, but applyingfor one using maintenance payments as a source of income is unlikely to further jeopardise your chances.
However, it is paramount to approach the right type of lender; one that takes a flexible approach to your maintenance income requirements, and is willing to consider bad credit applicants. The help of a broker can be invaluable in this situation, because the last thing you want is a mortgage rejection and further damage to your credit score.
If you do have a history of adverse, don’t panic. There are specialist bad credit mortgage providers out there, and many are happy to consider the bigger picture, i.e. the severity of the issue, how long ago it occurred, and how your finances have fared since, before coming to a decision.
Speak to a broker for maintenance income mortgage adviceIf you’re looking for a mortgage, it’s always a good idea to discuss your options with a broker. Our extensive market access means we’re in a position to seek out competitive deals you won’t otherwise find on the high street.
If you’re hoping to use child maintenance as income for a mortgage application, our assistance can make all the difference. Lender criteria vary significantly in this area, and our specialist advisors know exactly what’s what.
After getting to know you and your circumstances, they can use their extensive market knowledge to recommend the most suitable mortgage providers for someone in your position.
Give us a call on 02380 980304 or submit an enquiry via our online form and tell us a bit more about you. One of the team will be in touch to discuss your options and what your next steps should be.