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Can I get a mortgage on benefits?
Many mortgage lenders can accept people on benefits. Like with most mortgage lending, however, it is not always so black and white so may depend on other factors.
Different lenders treat benefit income in different ways. For example, some may use a percentage of the income rather than take all of it. For instance, a lender may say that if there are tax credits, the lender accepts 60% of them.
They may also look at entitlement to these benefits in the future. The reason they need to do this is to ensure that this income is sustainable and will continue to support you during the mortgage term. If for example, you were receiving an allowance for a disability but it was temporarily, a lender may be uncomfortable using this if it looked as if it was ending shortly.
Lenders need clarity about what the benefits are, why they are being received, how long they are expected to last and other income applicable to the application.
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What are some different types of benefits?
There are many different types of benefits and some of the more common ones are universal credit, child benefit and disability living allowance. Here is a bit more information about each of these.
Universal Credit
Universal credit is paid to you to help with your general living costs if you are unable to work or are on a low income.
The payment is paid monthly and the amount you get is affected by the amount you earn (people on higher incomes get less).
Some people in full-time education can also claim universal credit.
Child benefit
Child benefit is paid to you four weekly if you are financially responsible for a child.
The definition of a child is under 16 or under 20 if in full-time education.
The benefit is paid four weekly and there is no limit on the number of children that can be claimed for with child benefit.
It is income dependent so when you go over a certain threshold, you may no longer be eligible.
Disability living allowance
Disability living allowance (DLA) is a payment made to people with a disability to help them get by on a day-to-day basis. DLA will be replaced by PIP which stands for personal independence payment.
It may be that the person claiming is unable to work due to their disability or incurs further costs as a result of it.
The payment is tax-free and reviewed at certain intervals.
Do all mortgage lenders accept benefits?
Some mortgage lenders are better with benefit income than others but this changes over time as lenders review their criteria.
Most don’t discount benefits entirely but some may accept some but not others. For example, some lenders can accept permanent disability living allowance but not child benefit that ends in a couple of years.
A mortgage adviser can match you to a lender accordingly when they know your full situation.
Are there restrictions to the benefits that lenders accept?
There are restrictions that some lenders have when accepting benefit income.
For instance, some lenders won’t use all of the benefit income. Some lenders will restrict benefit income to a certain percentage so perhaps 50% of this income.
Some will not include many types of benefits such as child tax credits, working tax credits and universal credits.
A common lender approach is to exclude benefits that will likely expire shortly. For example, if an applicant was getting child benefit for a 15-year-old and the benefit was due to expire in 2 years many lenders would not include this in a mortgage that had 20 years to run as the income is not sustainable.
For disability living allowance or carers allowance, these are not always permanent. A lender would usually ask for the letter verifying the terms of the benefit payment to assess how long it is to be paid for.
Another approach is not allowing applications where benefits outweigh earned income. Not all lenders limit this but some exist where they need earned income to be more than that of benefits.
An experienced mortgage adviser would search for the correct mortgage adviser taking the above potential limitations into account.
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Should I use an independent mortgage adviser when considering a mortgage with benefit income?
It is recommended to look for an independent mortgage adviser when considering a mortgage with benefit income. The reason is, that each lender treats the benefit income differently so if you only talk to your bank, it may be that they cannot lend you what you need when another lender perhaps could.
There is no reason not to talk with your bank too if they can offer this but due to the mortgage market being complex with a large variety of products, it is recommended to also speak with an independent qualified adviser that can scan the entire mortgage market for you.
Can I get a mortgage using benefit income if I have bad credit?
It is possible for people with adverse credit on their credit files to get a mortgage using benefit income. Not all lenders will offer this and it will depend on what the adverse credit is.
For example, it could be defaults, missed payments, county court judgements, bankruptcies, individual voluntary arrangements and so on.
To view a copy of your credit file, you can go to Check My File.
This adverse credit may affect the equity you need and the amount you can borrow. A professional mortgage adviser could work this out for you once they know your full situation and have seen a copy of your credit file.
Can I get a buy to let mortgage if I have benefit income?
Some lenders offer buy to let mortgages for people on benefit income. Not all buy to let lenders will consider this income if they have a minimum earned income amount (e.g. £25,000) and the income is not equating to this without the benefits included.
Fortunately, there are many buy to let lenders that are not so concerned about income levels and the make-up of the income as long as the lender is comfortable that the applicant will be in a strong enough financial position to make sure their mortgage is paid.
Your mortgage adviser will be able to source a buy to let mortgage lender that can include and accept benefit income in their affordability assessment assuming the rest of the lending criteria is met.
Read more: Can I get a buy to let mortgage with no income?
Conclusion
Some lenders can accept benefit income but lenders will need to see the full picture when considering them. What the benefits are, the amount you get in comparison to earned income and their sustainability are all things the lender will need to understand.
To find out if you qualify for benefits, you can go to Entitledto where they have a free benefits calculator.
You should always get professional mortgage advice when considering taking a mortgage. If you would like I NEED ADVICE to match you with a qualified mortgage adviser with experience in benefit income mortgages, please complete the contact form.
They are experienced, which can boost your chances of being approved.
