Mortgage affordability and benefits

If your income consists solely of benefits, it will be difficult to secure a mortgage. You must pass strict Mortgage Affordability Tests when you apply. Your lender will also assess how vulnerable you are to income shocks, such as a rise in interest rates.

Support for Mortgage Interest (SMI)

You have to repay the SMI loan, when you are able to return to work or when you sell the property. If there's no equity left in the property when it's sold and all other charges are repaid, the debt will be written off.

Easy read guide for Support for Mortgage Interest (GOV.UK)

Home Ownership for People with Long-term Disabilities (HOLD)

HOLD is not a separate product but is a route into shared ownership. It’s available in England only. You can only apply for the HOLD scheme if other shared ownership schemes do not suit your needs. You can apply for affordable home ownership through your local Help to Buy agent (LHBA). You must meet the agency’s general eligibility criteria:

  • You will need to be a first-time buyer (or be defined as being in housing need).
  • Your household income is £80,000 a year or less outside of London or £90,000 a year or less in London.
  • You must not have any outstanding credit issues, such as County Court judgements.

There are only a few lenders offering mortgages for this scheme.

My Safe Home has an easy read guide about shared ownership for disabled people.

Mortgages things to consider

Choosing a mortgage

A lot depends on how much you want to borrow and how long you want to borrow for. You must pass strict Mortgage Affordability Tests when you apply and in the future. Various stress tests apply to see how vulnerable you would be to income shocks or a rise in interest rates.

The best way to find out if there is suitable mortgage product for you is to talk to a mortgage broker. The broker will search the market for you to find a product which is suitable for your circumstances.

Find local independent financial advice from Unbiased or from Your Money Advisor.

Check your credit report before applying for mortgages. Make sure there are no issues with your credit file. It was also give you an idea of your credit score. There are some organisations offering free credit reports.

Usually the higher the lending risk, the more expensive the mortgage. The interest rate could be higher and the arrangement fees could also be higher too. You should always get independent financial advice before taking on a mortgage.

Income from children's benefits

Lenders will generally not consider any income from benefits you get as a carer for children. This can include Child Tax Credits, Working Tax Credit and the child element of Universal Credit.

Council right to buy

The lender will still assess affordability. It’s unlikely that you will get a mortgage for this if your income is solely made up of benefits.

Right to Buy (GOV.UK)

Affordability

The chances of getting a mortgage when your income consists solely of benefits are very low. The maximum loan to value available to people on benefits is usually 75% of the purchase price or value of the property. If you have a partner who is working, or you are also working, lenders will consider your benefits as part of the household income. Lenders may consider Employment Support Allowance (ESA) awards (Support Group with an award of at least 3 years). This varies from lender to lender.

Extra costs of home buying

You’ll need to think about a deposit and cover extra costs of home buying, such as legal fees, stamp duty and insurances. Life insurance can be a problem and it’s essential when taking on a mortgage. You may have difficulties finding affordable cover when you have pre-existing conditions. You may need to contact several insurers to find a suitable product.

Search the British Insurance Broker’s Association (BIBA) website for brokers.

As a homeowner you will be responsible for the maintenance and repairs to your home. These costs can be considerable so plan for unexpected costs, such as your boiler breaking down or the roof leaking.

 

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