How to get a mortgage on low income or benefits

Getting a mortgage is often possible even when you’re on a low income, receive benefits or are retired and earning a pension. Keep reading to find out more information about mortgages and low income and/or benefits.

Can you get a mortgage on a low income?

It will depend on your individual circumstances but yes, you could get a mortgage even if you have a low income. While the application process may take a bit longer, and there may be more hoops to jump through, you could still be able to purchase your next home.

Some mortgage providers won’t just take your income into account, but may also look at other assets you own and the amount of savings you have. These things could show them that you could still make your monthly mortgage payments, even when your income is minimal. Each lender is different so it’s recommended that you shop around and find the one that can provide you with the funds and repayment terms that meet your needs.

How to get a mortgage on a low income

To get a mortgage on a low income you'll need to complete an application form for the bank or lender you wish to borrow from.

The first thing they will do is determine your affordability, i.e. check to see if you can manage the repayments without getting into difficulty or losing the house to repossession. In order to do this, the lender will need to get an idea of your finances. They will look at your total budget and the size of the mortgage you wish to take out to ensure that you can cover not just the monthly mortgage payments, but also the household bills, council tax and any other living costs, including car insurance and home insurance.

If you’re concerned about being rejected from a lender because of your income, it’s a good idea to seek advice from a mortgage advisor. They can assist you with the process, suggest lenders they think will accept you, and help make your application look as good as possible.

While some mortgage advisors may charge a fee, others won't. This is because many banks now outsource mortgage assessments to mortgage advisors, so the fee will be paid by the lender, not yourself. For this reason, it can be cost-effective to shop around or use a recommendation site like Unbiased. 

Showing proof of income

When you send off your application, you’ll need to show proof of your income. This can usually be done with any of the following:

• Payslips (usually three months’ worth)
• A P60
• Bank statements (usually three months’ worth)
• Utility bills, dated within the last three months
• Council tax bill

You will likely need all of these documents when sending off your mortgage application. If you’re self-employed, you’ll also need at least three SA302s (Self Assessment tax return).

Once this information has been submitted, the lender will analyse all of it. They’ll be most interested to see your regular cash flow, such as frequent income payments, but they will also take a look at your credit score. This can give them an idea of how you manage your money, whether you’ve missed any loan or credit card payments in the past, etc. It can show them your debt, too, if you have any. Finally, they will look at any deposit you may have saved.

Improving your chances of getting a mortgage on a low income

If you’re still concerned that you won’t be able to get a mortgage on your low income, or have already had an application denied, there may be some things you can do.

First, you could try to improve your credit score. It’s a good idea to check your credit score and find out what steps, if needed, can be taken to improve your score. Lenders will use this to determine how risky they perceive you are to lend to, and so the better the score, the higher your chances of receiving a mortgage. You should check for errors on the report, perhaps where accounts are no longer open or the amount of debt you have is incorrect. You can also improve it by making sure you’re on the electoral roll and clearing as much debt as you can before applying for your mortgage. Avoid applying for new credit cards or loans if you’re trying to purchase a property.

Next, get an idea of your own finances. Realistically, what is the maximum amount you can afford to pay for a mortgage each month? You could set up a spreadsheet that contains all of your outgoing and incoming money to see where you stand. Take additional costs into account when purchasing a house, such as increased council tax, stamp duty, legal services and solicitors fees.

If possible, you could set aside a larger amount of money for a deposit. Not only could this result in a better mortgage or reduced interest rates but also shows the bank you can save money, regardless of your income.

Can you get a mortgage on benefits?

Yes, it is possible to get a mortgage even when you’re on certain benefits. Bank lenders cannot discriminate based on the source of the income ‒ whether you have long-term disabilities, for instance, or dependents to support, you have the same rights to a mortgage as someone without these things.

For this reason, a lender should look at your mortgage application from an income perspective. Any benefits will be counted towards regular income and could help you to secure a mortgage, even when you’re on a low income.

The below benefits count as additional income when applying for a mortgage:

• Attendance Allowance
• Carer’s Allowance
• Child Benefit
• Disability Living Allowance (DLA)
• Incapacity Benefit (IB)
• Industrial Injuries Benefit (IIB)
• Maternity Allowance
• Pension Credit
• Severe Disablement Allowance
• Widow’s Pension

For most people, the following benefits are now provided as part of your Universal Credit payments and also count as additional income:

• Income-based Job Seeker’s Allowance
• Income-related Employment and Support Allowance
• Income Support
• Working Tax Credit
• Child Tax Credit
• Housing Benefit

If you are eligible and receive any of the above, they will now be provided as one lump-sum payment through Universal Credit instead of separate payments.

It’s worth considering that the lender will likely favour long-term government payments over short-term ones that could end at any time.

How to get a mortgage on benefits

You can apply for your mortgage as normal, either directly through the bank or through a mortgage advisor. You will need to provide proof of the benefits you’re on and how much you receive. This can be done through bank statements, payslips and benefits details.

Lenders will generally loan you up to five times your annual salary if you’re applying alone, and up to four times your income if you’re applying with someone else. As benefits are considered income, these will be included in this general rule. Each lender is different, so these figures may not be completely accurate, but they can be used as a good guide for you to see how much you can afford.

As with mortgages and low income, there may be more hoops to jump through when you’re applying for a mortgage and receiving government benefits, but it shouldn’t stop you from applying or owning your next home.

For more advice in purchasing and maintaining a property, try exploring the rest of Age Co's Useful Articles.