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What is Universal Credit?
A common question for soon-to-be homeowners is whether mortgage lenders accept Universal Credit as a form of income. The simple answer is yes; you can get a mortgage on Universal Credit. The only problem is whether you or your mortgage broker can convince a lender of your ability to afford a mortgage. Let’s break down Universal Credit…
Universal Credit is a UK government benefit designed to simplify the welfare system. It combines six previous benefits, namely:
- Child Tax Credit: Those looking for support with providing for their children can benefit from child tax credit.
- Disability Living Allowance (DLA): An income solution for those with mobility or care needs.
- Income Support: Support for those with low income and under £16,000 in savings.
- Income-Based Jobseeker’s Allowance: An unemployment benefit for those seeking work.
- Income-Related Employment and Support Allowance (ESA): Support if you can’t work because of illness or disability.
- Housing Benefit: Aid for renters to cover part or all of their rent.
- Working Tax Credit: A financial boost for low-income households.
It was introduced to help those out of work or on a low income. However, Universal Credit aims to ensure that people looking to claim benefits are better off in employment than on benefits.
When applying for a mortgage, government benefits have generally been recognised as legitimate income sources by mortgage lenders.
The Affordability Factor
Affordability is a huge part of seeking a mortgage. Lenders assess whether applicants can manage mortgage repayments, especially if relying solely on Universal Credit. Plus, it’s not just about current earnings. Lenders also assess the stability of income sources and the potential future changes.
Although Universal Credit can bolster your income, ensuring consistent mortgage payments is crucial. If Universal Credit isn’t giving you enough of an income to cover a mortgage, then a mortgage may be deemed unaffordable considering your financial circumstances.
Legal Stance on Mortgages and Benefits
In the UK, it’s illegal for mortgage lenders to discriminate against applicants based on their income source, including Universal Credit. Everyone has the right to mortgages and equal mortgage rates and terms.
Keep in mind that each mortgage application is unique, with lenders considering personal circumstances and credit history. While this ensures fairness, it’s important to remember that the lender’s primary concern is the applicant’s ability to manage mortgage repayments, regardless of their income type.
Mortgages with Low Income and Benefits
Mortgages can sound intimidating if you have a low income supplemented by benefits. Luckily, several mortgage lenders are open to considering benefit income. This ensures that a broader range of applicants can access property ownership.
Although the primary concern is still the ability to cover mortgage interest and repayments, having consistent benefit income can help one’s application. Some lenders specifically accept benefit income, recognising its stability for many claimants.
Exploring options like the Shared Ownership scheme can make homeownership more attainable for those on tighter budgets, offering a path to securing property.
Government Schemes and Support
For those aiming to get a mortgage on benefits, the government has several schemes to ease the journey towards homeownership. These initiatives are designed to support those who might find it challenging to secure a mortgage through traditional methods.
The Help-to-Buy scheme, for example, assists first-time buyers with an equity loan, reducing the initial deposit required. The Right-to-Buy programme enables council house tenants to purchase their homes at discounted rates, making the dream of ownership more attainable.
Also, the Shared Ownership scheme allows individuals to buy a share of a property and pay rent on the remaining portion. Over time, they can increase their ownership share.
It’s vital to research and understand these schemes thoroughly. Collaborating with a knowledgeable advisor could help before you approach the actual mortgage lender. Mortgage advisors can provide insights into which programmes best align with an individual’s circumstances, ensuring a smoother path to property ownership.
FAQs
Can you get a mortgage on just benefits?
Yes, you can get a mortgage solely on benefits. However, mortgage lenders mostly focus on affordability. Although benefits count as income, each lender’s criteria vary. The best approach is to research and compare lenders to find those accepting benefit income.
Do mortgage lenders accept Universal Credit?
Absolutely. Many mortgage lenders consider Universal Credit as part of your income. But, they’ll evaluate how much of this benefit contributes to your overall earnings. They’ll also look at the stability of other incomes when deciding on a mortgage arrangement.
How does bad credit affect my mortgage application if I’m on benefits?
Bad credit can create challenges, making mortgage approvals tougher. When combined with benefits as a primary income, it might limit your options. However, some mortgage lenders specialise in assisting those with bad credit, offering tailored solutions.
How can a mortgage broker assist me if I’m on benefits?
A mortgage broker can get around the complexities of mortgages on benefits. They provide insights into which lenders accept benefits as income, which could increase approval chances. Brokers also offer tailored advice, ensuring you find the best mortgage fit for your circumstances.
Conclusion
We can’t deny that getting a mortgage while claiming Universal Credit or other benefits can be daunting. But, with the right knowledge and guidance, it’s very possible to secure a home loan. The key is understanding the various factors that mortgage lenders consider, from your overall financial health to the type of benefits you receive.
Many mortgage lenders accept benefits as a legitimate income source, showing a more inclusive approach to lending. As you embark on your homeownership journey, remember to research, consult professionals, and stay informed. With determination and the right support, stepping onto the property ladder is within reach.
Sources:
https://www.gov.uk/universal-credit
https://www.bankrate.com/uk/mortgages/getting-a-mortgage-on-benefits/
https://www.onlinemortgageadvisor.co.uk/income-types/mortgage-on-benefits/
https://www.expertmortgageadvisor.co.uk/mortgage-help/mortgage-on-benefits/