Check eligibility for a mortgage on a low income
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Most people believe that if they have a low income, they’re not eligible for a mortgage. But if you’re unemployed, receiving a pension, getting government benefits or have a bad credit rating, you could still get one.
It’s harder to get a mortgage with a low income but it’s not impossible. While there are no specific low-income mortgages, you can increase your chances of mortgage approval by following the tips listed below.
Mortgage providers have their own criteria for lending. These are usually kept a secret, but don’t let that deter you from applying for a mortgage. When you apply for a home loan, lenders evaluate the amount you can borrow by looking into your ability to repay. The amount of money you have in your bank account is also a factor, as it shows that you can save money despite your household expenses (groceries, utility bills, credit card payments, etc).
Other costs that may come into play are legal or processing fees, property survey fees, maintenance and repair fees. And don’t forget to factor in possible interest rate increases over the total time it will take to repay your mortgage.
The kind of mortgage you are applying for and the terms on which you borrow are also factors. The best way to get the amount you need is to be prepared and to ensure that the mortgage you are aiming for is affordable.
Income is the biggest factor when it comes to mortgages, but many lenders consider different kinds of financial sources when evaluating mortgage applications. Aside from having a job, receiving rental income or regular government payments, lenders also look into allowances such as child support payments, pensions and disability benefits, and other money sources that supplement your income. You will need to submit proof of these income sources with your application form. Read our comprehensive list on which sources of income including benefits and allowances are accepted.
In some instances, lenders will approve applications from people who are not earning actively but have a certain amount of money in the bank. This is usually the case when you’re applying for a mortgage from the same bank with which you have your current and savings accounts, but other lenders may accept this as well. The terms and conditions of each provider vary, so it’s best to compare each and pick the one that will work best for you.
Getting all the documents you’ll need for a mortgage application can be a time-consuming process, especially if you have to ask others to provide them. Here’s a list of documents that are usually required:
Read our guide on which documents are required for a mortgage if you would like to know more information.
There are plenty of schemes available in the UK to help people with low incomes get onto the housing ladder. Below, we introduce five of the most popular schemes, explain how they work and whether you’re likely to be eligible to apply.
Under the Help To Buy scheme, you can borrow up to 20% of a property’s value from the government as an equity loan. You can apply for a Help To Buy mortgage with a 5% deposit or higher, with the equity loan acting as a top-up for this. You’ll then take out a mortgage on the remaining percentage of the property. For example, if you have a 5% deposit and a 20% equity loan, your mortgage will be worth 75% of the property’s value.
You’ll start paying interest on the equity loan after five years. It will be paid back in full when you sell the house. Help To Buy equity loans are only available on participating new-build properties worth up to £600,000 in England, £300,000 in Wales or £200,000 in Scotland. The maximum loan size is 15% in Scotland, but you can borrow as much as 40% for properties in London.
If you live in social housing, you may be able to buy your property at a significant discount compared to its market value, using the Right To Buy scheme. The discount typically depends on the type of property you live in and how long you’ve lived there. It could be worth up to £108,000 for London properties or £80,900 across the rest of the UK.
It’s available for people renting a council property, plus some housing association tenants. To be eligible, you’ll typically need to have lived in the property for at least three years.
There are a lot of variables. What’s more, not all lenders offer mortgages to those buying under this scheme. As such, it’s worth approaching a mortgage broker to get a clear view of your options.
Many lenders will approve lower-income applicants who add a guarantor to their mortgage. A guarantor is an individual who agrees to be liable for covering the applicant’s debts should they fall behind on mortgage repayments.
Shared ownership allows you to “part buy, part rent” properties from a housing association. Under this scheme, you can buy a share of the property worth between 25% and 75%. You’ll then pay rent to the housing association on the remaining share.
You can buy additional shares in the property whenever this is affordable for you. This is called “staircasing”. The house will be revalued each time you do this.
To be eligible for shared ownership, your household will need to earn less than £80,000 a year (or £90,000 in London). You’ll also need a deposit worth at least 5% of your share.
Not all lenders offer mortgages for shared ownership properties, so it’s worth using a mortgage adviser to find the best deal for you.
You can apply for a mortgage jointly with up to three other people. If you do, lenders will consider your income jointly, meaning you may be able to borrow more.
However, your creditworthiness will also be considered jointly. If your co-purchaser has a bad credit score, it could harm the chances of your application being approved.
If your co-purchaser stops making mortgage repayments, you’ll be equally responsible for the debt. Also, you won’t be able to sell the property unless all owners agree to do so.
There are two types of joint ownership: joint tenants and tenants in common. With the former, your share of the property passes onto the co-owner(s) when you die. With the latter, you can leave your share to anyone in your will.
Below is a snapshot of the schemes offered by some of the UK’s major mortgage lenders (correct as of 17 January 2019).
|Aldermore Bank||5% deposit mortgage, Help To Buy equity loan, Joint mortgage.||Compare with broker|
|Barclays||Help To Buy equity loan, Shared Ownership mortgage, Family Springboard mortgage, Joint mortgage.||Compare with broker|
|Halifax||Family Boost mortgage, Help To Buy equity loan, Right to Buy, Joint mortgage.||Compare with broker|
|Lloyds Bank||Help To Buy equity loan, Lend A Hand mortgage, Joint mortgage.||Compare with broker|
|Nationwide||5% deposit mortgage, Help To Buy equity loan, Shared Ownership mortgage, Right To Buy, Joint mortgage.||Compare with broker|
|Natwest||5% deposit mortgage, Help To Buy equity loan, Joint mortgage.||Compare with broker|
|Royal Bank of Scotland||5% deposit mortgage, Help To Buy equity loan, Joint mortgage.||Compare with broker|
|Santander||5% deposit mortgage, Help To Buy equity loan, Shared Ownership mortgage, Joint mortgage.||Compare with broker|
You can increase the chances of being approved for a mortgage, even on a low income. Here are a few options to think about:
There’s nothing preventing minimum-wage workers from being approved for a mortgage. The amount you can borrow will depend on your annual salary. Some lenders will allow you to borrow up to five times this amount, although you could borrow more when using one of the government’s first-time buyer schemes.
Mortgage lenders traditionally look for certainty of income when assessing the affordability of your mortgage. This has historically left zero-hours contract workers out in the cold.
However, some lenders are beginning to change their eligibility criteria to throw a lifeline to these workers.
Typically, a mortgage lender will allow you to borrow between four and fives times your annual salary. However, this multiplier depends on a number of factors, including your credit score, deposit size and employment circumstances.
Some lenders will approve buy-to-let mortgages for applicants with no income, as you’ll be using your rental income from the property to pay off the mortgage. However, you may need to demonstrate a history of successfully managing buy-to-let properties in order to be granted a deal like this. Our buy-to-let mortgage guide explains more.
1. Start saving for a deposit.
2. Make sure your finances are in order and you’re spending sensibly, as lenders will look at recent bank statements.
3. Work out what income your have coming in – including wages, benefits and other income sources.
4. Consider whether you want to buy jointly with someone else or perhaps want to look into a guarantor mortgage, plus check out any house buying schemes open to you (e.g. shared ownership).
5. Compare current mortgage rates and approach a mortgage broker or a mortgage lender about securing a suitable home loan.
It is possible to get a mortgage on a low income – and things like government benefits and pension payments also count. Lenders typically lend between four and five times of a borrower’s (or joint borrowers’) income, so it’s important to look at your finances and work out would size home loan you could realistically qualify for before searching for properties. Don’t forget to check out the various home ownership schemes available too, such as shared ownership, in case these open up other options to you. A mortgage broker could also help you explore the mortgage market and find mortgage products that may be suitable for you.
Everything you need to know about how to get on the property ladder by yourself.
How to improve your chance of being approved for a mortgage if you are receiving benefits.
If you’re a single parent buying a home, you may be able to use child benefit payments to supplement your income when applying for a mortgage.
Lenders have a range of mortgages available to temporary contract or zero-hour contract workers. Find out how you can maximise your chances of approval and get into a new home sooner.
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