Can You Get a Mortgage While on Benefits? Here’s How

Getting a mortgage while receiving benefits is possible, but it comes with several considerations and challenges. Some of the primary factors that lenders evaluate include the type of benefits received, overall income, deposit size and the applicant's credit history. Lenders can take various benefits into account differently, making it important to understand which benefits are deemed acceptable and how they could influence mortgage eligibility.

Mortgage Lender Policies

Different lenders have different policies regarding benefits. For example:

• Barclays: Accepts a variety of disability benefits as 100% of primary income.

• Halifax: Counts the Disability Living Allowance as additional income.

• HSBC: Accepts long-term disability benefits but requires detailed documentation.

• Santander: Accepts disability benefits as primary income if they are indefinite.

• NatWest: Considered to be more flexible with people who receive benefits as an extra income source.

Types of Benefit Considered for Mortgages

Some of the benefits that may be considered by lenders include:

• Severe Disablement Allowance

• Child Tax Credit

• Incapacity Benefit

• Pension Credit

• Carers Allowance

• Universal Credit

• Attendance Allowance

• Widow's Pension

• Disability Living Allowance (DLA)

• Industrial Injuries Benefit (IIB)

• Personal Independence Payments (PIP)

• Child Benefit

• Maternity Allowance

Challenges and Considerations

Affordability and Income Assessment

Lenders conduct thorough affordability checks to ensure applicants can manage mortgage repayments and living expenses. They scrutinize benefit income to determine its stability and sufficiency. For instance, lenders may consider only a percentage of the benefit income or require additional sources of income to mitigate risks.

The Office for National Statistics (ONS)'s Annual Survey of Hours and Earnings (ASHE) provides insight into median weekly earnings, which increased by 6.2% for full-time employees from April 2022 to April 2023​​. This kind of data might help lenders assess the income levels of benefit recipients compared to the broader population.  

Deposit Size: A larger deposit significantly enhances the chances of mortgage approval for benefit recipients, as indeed it does for other recipients. Lenders view a substantial deposit as a reduction in their lending risk.

Credit History: A strong credit history is usually important for a mortgage application. Benefit recipients must try and ensure that their credit records are in good standing.

Government Schemes and Support

Several government schemes are designed to assist low-income and benefit-dependent individuals:

• Shared Ownership: This scheme usually allows individuals to buy a 25% - 75% initial share of a property (and sometimes a lower share of 10%) with a mortgage and pay rent on the remaining share. The remaining share can be bought out over time. It makes homeownership more accessible by reducing the initial cost burden.

• Right to Buy: This scheme offers significant discounts on property purchases for council and housing association tenants, making it easier for long-term tenants to buy their own homes.

• Support for Mortgage Interest (SMI): SMI provides a loan to help with mortgage interest payments for existing homeowners who receive certain income-related benefits. This support helps prevent repossession during financial hardships.

Can you get a mortgage if you on a housing benefit (HB), employment and support allowance (ESA) or pension credit?

It is possible to get a mortgage while receiving benefits such as Housing Benefit (HB), Employment and Support Allowance (ESA) and Pension Credit, although it can be challenging.

Housing Benefit

Housing Benefit (HB) is a means-tested benefit designed to help low-income individuals and families with housing costs. It primarily assists with rent payments and can be applied to both private and social housing.

• Eligibility: To qualify for Housing Benefit, applicants must have a low income or be on other benefits, and their savings must typically be below £16,000 unless they receive Guarantee Pension Credit.

Employment and Support Allowance

The Employment and Support Allowance (ESA) benefits people who are ill or have disabilities that affect their ability to work. ESA offers financial support if they cannot work and personalized help if they can with it.

• Types: ESA is divided into two types—contribution-based ESA and income-related ESA. Contribution-based ESA is based on National Insurance contributions, while income-related ESA is means-tested.

• Components: There are two main phases of ESA:

• Assessment Phase: During the initial 13-week period, claimants undergo a Work Capability Assessment to determine their eligibility and which of the two groups they will be placed in.

• Main Phase: Claimants are placed in either the Work-Related Activity Group (WRAG), where they receive support to return to work, or the Support Group, where they receive higher payments due to severe disability or illness.

Pension Credit

Pension Credit is an income-related benefit aimed at low-income pensioners. It provides extra money to help with living costs if you are over the State Pension age and have a low income.

Types: There are two parts to Pension Credit:

• Guarantee Credit: Tops up your weekly income if it is below a certain level.

• Savings Credit: This is an extra payment for those who have saved some money towards their retirement, such as through savings or investments. This part is only available for people who reached the State Pension age before 6 April 2016.

• Eligibility: To qualify, you must live in the country and your income must be below a certain threshold. The amount you receive depends on your specific circumstances.

Statistical Overview

Department for Work and Pensions (DWP) benefit statistics from August 2023 offer an insight into the distribution of various benefits. For example:

• Housing Benefit (HB): As of May 2023, there were 2.4 million HB recipients, with 1.1 million pension-age and 1.3 million working-age recipients​. Additionally, 3.3 million households had a housing element included in their Universal Credit assessment, with 3.1 million in payment.

• Employment and Support Allowance (ESA): There were 1.6 million people on ESA as of February 2023, including 1.4 million in the Support Group​.

• Pension Credit (PC): As of February 2023, 1.4 million people were receiving pension credit, about two-thirds of them women​.

These figures highlight the scale of benefit dependency and the potential pool of individuals who could be seeking mortgages while on benefits.  

Disability Living Allowance (DLA) Statistics

As of February 2023, approximately 1.3 million people in the UK claimed Disability Living Allowance (DLA) and approximately 3.3 million people claimed Personal Independence Payments (PIP)​.

Can You Get a Mortgage on Disability Living Allowance?

It is possible to get a mortgage while receiving Disability Living Allowance, although it can be challenging. Here are some key points:

1. Income Consideration: Some lenders accept DLA as part of your income, especially if it is long-term and stable. However, they may only consider a percentage of the benefit amount.

2. Additional Income: Additional sources of income alongside DLA, such as a part-time job or other benefits, can improve your chances of securing a mortgage.

3. Lender Policies: Different lenders have different policies regarding benefit income. It is crucial to research or consult with a mortgage broker who can identify more flexible lenders with benefit income.

4. Affordability Checks: Lenders will conduct thorough affordability checks to ensure you can manage mortgage repayments and other expenses.

5. Deposit Size: A larger deposit can significantly enhance your mortgage chances by reducing the lender's risk.

Improving Mortgage Approval Chances

For benefit recipients, several strategies can enhance mortgage approval prospects:

1. Saving for a Larger Deposit: Aim to save at least 10% of the property's value, but more substantial deposits can unlock more approvals and better mortgage rates.

2. Maintaining a Strong Credit History: Regularly check your credit score and, if required, improve it by managing your debts responsibly.

3. Combining Incomes: Applying for a joint mortgage with a partner can increase the total assessable income, thereby improving affordability assessment.

4. Seeking Expert Guidance: Mortgage brokers with experience in dealing with benefit income can navigate the complex landscape of lender requirements and find the best deals available.

FAQs:

Q. Is it possible to get a mortgage while receiving benefits?

A. Yes, getting a mortgage while receiving benefits is possible, but it can be more challenging. Lenders will look at factors such as your credit history, size of deposit and overall income, including benefits, and conduct thorough affordability checks to assess if you can manage your mortgage repayments and other living expenses comfortably. ‍

Q. Which benefits are typically accepted by lenders for mortgage applications?

A. Lenders may accept various benefits as part of their income, including Personal Independence Payments (PIP), Disability Living Allowance (DLA), Universal Credit (excluding the housing element), Carer's Allowance and Pension Credit. However, policies vary among lenders, so checking with specific lenders or consulting a mortgage broker can be important.

Q. Do I need a larger deposit if I am on benefits?

A. A larger deposit can significantly improve your chances of securing a mortgage. It reduces the lender's risk and may also help you access better mortgage rates and terms.  

Q. Are there government schemes available to help people on benefits get a mortgage?

A. Yes, several government schemes, such as Shared Ownership and Right to Buy, can assist people with benefits in purchasing a home. Support for Mortgage Interest (SMI) can also help existing homeowners with mortgage interest payments during periods of financial hardship.

References:

DWP benefits statistics | GOV.UK | Published Aug 2023

Mortgage lending statistics | FCA | Published Jun 2024

Employee Earnings in the UK | ONS | Published Apr 2023