Changes to benefits in 2021Lots of people in the UK received a 0.5% increase in their benefits due to changes brought in on April 12th, 2021. The new financial year saw changes to:
Personal Independence Payment (PIP)
Disability Living Allowance (DLA)
Employment and Support Allowance (ESA)
Income Support and Housing Benefit
While the increase is likely to have little to no effect on people’s additional expenditure, it has made many think about their finances. Misinformation and doubt had led many to believe that getting a mortgage while on benefits is impossible but that’s not true.
Should I buy a house or rent a house if I receive benefits?Mortgage payments are usually lower than rental payments, so it makes sense to want to buy a home not only to potentially reduce outgoings but to build equity for future security. While the upfront costs of getting a mortgage can be off-putting and certainly more than the upfront costs of renting, in the long-term, buying a house or flat can be cheaper.
Property prices can also increase over time, which could provide you additional equity or wealth if you decide to sell. Leaving an inheritance to loved ones is important to some people and paying a mortgage to build equity as opposed to paying rent, can be a good way to leave wealth to children, siblings, or a spouse. Landlords sometimes gradually increase rent too, whereas if you opt for a fixed-rate mortgage, you’ll have the same repayments.
Can you get a mortgage while on benefits?Yes, you can get a mortgage in the UK while receiving benefits. The likelihood of you getting approved is usually reliant on your overall ability to repay your mortgage, so if you have other streams of income from a job or pension or have assets like another property to use as security, then you might be able to find a lender.
Some lenders accept income from benefits and don’t require the borrower to receive income from employment. That’s because a lender’s main concern is a borrower’s ability to cover their mortgage repayments. Therefore, as long as you can prove that you can afford to keep up with your loan repayments on time and in full, being on benefits shouldn’t stop you from getting a mortgage.
What benefits count as income for a mortgage?The below benefits can be included as income with many UK lenders but ask a mortgage broker to highlight the lenders that accept 100% benefit income or part income from benefits before making a formal application.
Disability Living Allowance (DLA)
Incapacity Benefit (IB)
Industrial Injuries Benefit (IIB)
Severe Disablement Allowance
How do you get a mortgage while on benefits?You’ll need to find a lender with criteria that is open to income from benefits. Using a mortgage broker with access to lots of lenders can be a good place to start and can save you time too. Googling which mortgage lender to go for will only get you so far but having access to information like their eligibility criteria, interest rates, and early repayment fees can help you narrow down your options and find realistic avenues to explore.
A mortgage broker can also show you the different affordable housing schemes and mortgage incentives that might be available to you to help make your mortgage and the purchase itself as cheap as possible.
Finding the right lender for a mortgage if you receive benefitsIt’s not all about upfront costs though, a good mortgage broker looks at the terms and conditions of a contract and compares them against other lender agreements to find the most suitable arrangement based on your circumstances.
Some mortgage agreements offer more flexibility for making overpayments, which can save you money in the long run whereas others might have a lower fixed interest rate but offer less flexibility, charging higher early repayment fees or early exit fees. With so many factors to consider carefully, check reviews and get advice from a broker with experience in getting people a mortgage with income from benefits.
How much can I borrow for a mortgage that accepts income from benefits?Most lenders will look at your annual income and multiply it by 4.49 or above depending on the lender and your circumstances. So if your income from a job is £14,000 a year and you receive additional income from benefits of £2,000 a year, a lender may combine this figure and times it by 4.49 to determine you could borrow a maximum of £71,840 on a single person’s mortgage.
Joint mortgage while on benefitsIf you’re planning on applying for a joint mortgage with a partner, both incomes will be taken into consideration. For example, your total annual income of £16,000 and your partner’s hypothetical annual income of £18,000 equates to £34,000. When multiplied by 4.49, this could give you a maximum loan of £152,660.
The amount of debt you have, if any, as well as your other outgoings and financial commitments, will be taken into consideration when determining a mortgage amount that is affordable for you and under what terms. Your credit history and your partner’s credit history will be a focal point for lenders too as typically a lower credit score suggests a higher chance of defaulting on a loan.
Can I get a mortgage while on benefits and with bad credit?It’s not impossible. Lenders each have their own criteria so what one considers as severe bad credit, another may consider mild. This makes the search frustrating but never rush into making an application for a mortgage if you’re unsure whether they’ll accept you on the basis of adverse credit.
Reading mortgage criteria can be tedious (we know!) but if you skip through and hope for the best rather than knowing, you could end up getting rejected which is bad news for your credit report. Having a credit rejection on your credit report could make it more difficult when it comes to trying to apply for a mortgage again in the future because lenders might question why another lender was unprepared to loan to you.
Getting a mortgage with bad credit and income from benefitsWhile having a “good” credit score can open up your choice of mortgage lenders and potentially give you access to cheaper interest rates, having bad credit isn’t the be-all and end-all and with the right advice, it may be possible.
You might face paying slightly higher rates of interest because having bad credit suggests to lenders you’re a higher-risk borrower. If your credit issue occurred more than six years ago and is settled, you might find that more lenders are willing to loan to you but other factors like your income, job stability, and age can all affect whether you get approved for a mortgage on benefits with bad credit.
Getting a mortgage on benefits FAQS
Can a mortgage lender discriminate against me because I’m disabled?
If you can prove you have enough income to afford a mortgage while on benefits, you cannot be refused a mortgage on the grounds that you are disabled.
Under the Equality Act, banks, building societies, and other financial institutions must take steps to ensure that you can access their services. This may mean:
making their premises physically accessible, for example by installing a ramp or lift
providing information on their services in alternative formats, such as Braille or large print, or through an accessible website
arranging for someone to interpret for you using British Sign Language
helping you with written forms
allowing you to submit information to them in a convenient format, for example by email or over the phone if you have problems coming into their office.
Can I get a shared ownership mortgage on benefits?
Yes, shared ownership is open to applicants on benefits so even if your income is reliant in part on benefits (including Universal Credit), it may be possible for you to buy a share in a home.
Shared ownership schemes allow borrowers to purchase shares in a property while paying rent on the portion they don’t own.
If you opt for this government scheme, you’ll need to prove you have good affordability for the mortgage repayments, rental payment, service charge, and general cost of utilities.
Receiving benefits shouldn’t stop you from being able to get a Shared Ownership mortgage but keep in mind that not all lenders will include the benefit income you receive towards your affordability.
Where can I compare lenders that accept income from benefits?
Ask a mortgage broker to show you the lenders that do accept benefit income. They can use their access to the market as well as utilise their relationships with UK lenders, to filter through the irrelevant options and shortlist suitable lenders worth your time.
Alternatively, it may be determined that your income without benefits is enough to cover any hypothetical mortgage repayments.
Get a better idea of what your next steps might look like and chat to an expert online, on the phone, or face-to-face if you’re able to get to your chosen broker.