A Low income mortgage guide

In this brief guide, we are going to talk about low income mortgages and how you can get one.

Low-income mortgage

Not everyone can earn such high wages but everyone deserves to be able to get on the property ladder. If you have a low income and you want to get a mortgage then in this guide you will learn the various options available to you.

Most mortgage lenders have a minimum income they will accept on their mortgage products and they also have a minimum mortgage they will offer.

The minimum income most mortgage lenders have on their mortgage products is usually around £30,000 but with the right amount of effort and maybe a mortgage broker you may be able to find mortgage lenders who will accept a mortgage with an income as low as £15,000 or even £10,000 depending on the circumstances of the borrower.

Can you get a mortgage on a low income?

Yes, you can get a mortgage on a low income depending on the size of the mortgage you are after and if you are able to utilize any government schemes. If you are looking to get a low income mortgage then speaking to a whole of market mortgage broker who can search the whole mortgage market and identify mortgage lenders who are willing to lend to you based on your low income.

Below are 8 ways you can get a mortgage on a low income:

Using your supplementary income

Using a government scheme

Getting a joint mortgage

Reduce your debts

Increase your mortgage deposit

Borrow less

Increase your credit score

Your property type

We will discuss these 8 ways of getting a low income mortgage further below.

What is minimum income for mortgage?

The minimum income for a mortgage is the lowest annual income you must have to qualify for a mortgage. Minimum income differs from one mortgage lender to another in the UK but typically mortgage lenders will have a minimum income requirement of £20,000 but you can find specialist mortgage lenders who will accept a minimum income of £15,000 and even £10,000 under the right circumstances.

What is the easiest mortgage to get?

There is no mortgage that can be classified as the easiest to get. If anything mortgages have become much harder to get since the UK government did the mortgage market review and created new guidelines for the mortgage market. Most of these guidelines focussed on determining the borrower’s affordability for the mortgage which made mortgages less easy to get than before.

Can you get a mortgage with assets but no income?

You may be able to get a mortgage with assets but no income but this will depend on the type of assets you have, the mortgage lenders borrowing criteria, the type of mortgage you want and the mortgage deposit you have.

How do I qualify for a low income mortgage?

Qualifying for a low income mortgage is rather straightforward because mortgage lenders are less concerned with the size of your income but rather your ability to repay the mortgage. You can qualify for a low income mortgage by displaying you are able to afford the mortgage based on your monthly disposable income. You can try and make this case for yourself or you could use a mortgage broker to make this case for you.

When looking to see if you qualify for a low income mortgage, a mortgage lender may consider the below details:

Your credit score

The property

Your mortgage deposit

The type of mortgage

Any assets you have

If you have a guarantor

Your monthly expenses

How can I get a bigger mortgage with low income?

If you want to get a bigger mortgage with a low income then you can focus on these things.

Using your supplementary income: 

You can use supplementary income such as income from benefits to increase your monthly disposable income and hence increase how much you can potentially contribute towards your monthly mortgage repayment. 

Mortgage lenders don’t all accept supplementary income but those who do may only accept a percentage of it rather than all of the supplementary income.

If most of your earnings as a low income are of supplementary income then you may need to find a mortgage lender who is willing to lend you the amount you are after and also accept most of your supplementary income.

Some mortgage lenders may also accept benefits whilst some will not accept benefits. If benefits play a significant stake in your income then you will want to find a mortgage lender who accepts a higher percentile of benefits as income.

Supplementary income could include:

Pension income

Investment Income

Overseas earned income

Maintenance Payments

Rental Income

Bursary

Stipend

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

Using a government scheme: 

Using a government scheme may be able to increase your mortgage deposit or reduce the cost of the property and therefore reduce the size of your mortgage and potentially your monthly mortgage repayments.

Some of the Government schemes you may be able to use with alow income mortgage include:

• Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
• Help to Buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
• Help to Buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
• Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
• Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
• Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
• Right to buy- allows you to buy your home at a discount price.
• Preserved right to buy– same as above.
• Right to acquire- same as above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Getting a joint mortgage:

Using a joint mortgage could boost your mortgage affordability for a low income mortgage as the mortgage lender considers your income and your co-applicants income. Mortgage lenders may usually allow up to 4 people to be co-applicants on a mortgage but may only consider two of them for the mortgage affordability check.

Reduce your debts: 

Reducing your debts could increase the amount of money you have to contribute towards your monthly mortgage repayments as you will be paying less per month on your debts. You can refinance your debts to reduce the monthly repayments on them. Debts such as personal loans, car finance and credit cards can be refinanced.

Increase your mortgage deposit:  

Increasing your mortgage deposit will reduce the amount of mortgage you are seeking and could potentially reduce your monthly mortgage repayments.  

Increasing your mortgage deposit will also reduce the loan to value on the mortgage and this may make the mortgage lender more willing to lend to you.

The government schemes mentioned above could help you increase your mortgage deposit or alternatively you could ask your family and friends for a gifted deposit. You should be aware that most mortgage lenders have different criteria for what they will consider in regards to a gifted deposit.

Borrow less: 

Borrowing less is an easy way to reduce the mortgage balance you have and therefore potentially reduce the monthly mortgage repayments you may have on your low income mortgage and hence make a low income mortgage more affordable for you.

Increase your credit score: 

Having an increased credit score could mean a mortgage lender is more willing to offer you a low income mortgage as you have shown an ability to repay your credit agreements before.

If you are unsure of what your credit score is then you should check your credit score from the four credit bureaus in the UK: Experian, Crediva, Equifax and Transunion.

Some of these credit bureaus may charge you a fee to view your credit report so what you can alternatively do is request a statutory credit report which is a free credit report which each credit bureau must provide to you upon you requesting it.

Alternatively you can also use credit score services such as Checkmyfile and clearscore to check your credit report.

Once you know your credit score you can then do the following things to ensure you build your credit score and history.

Get on the electoral roll at your current address

Get a secured credit card

Get a credit builder card

Get a credit builder loan such as Loqbox

Avoid making too many credit applications

Avoid getting rejected for credit

Keep your credit utilisation below 30%

Open a bank or credit account

Can you get a low income mortgage with bad credit?

Getting a mortgage with bad credit may be difficult as mortgage lenders may usually want to lend to borrowers who have a good credit score and have shown a good repayment history on all their previous debts.

There are however mortgage lenders who will offer a low income mortgage to a borrower depending on what type of bad credit was and what the circumstances were.

If it was a CCJ which was satisfied and is a certain age then some mortgage lenders may be willing to lend. Other mortgage lenders may lend if the CCJ was a maximum amount.

When looking to get a mortgage with bad credit the requirements from different mortgage lenders will differ and a bad credit mortgage broker may be able to assist you in getting a low income mortgage.

Bad credit could include:

A CCJ

An IVA

A debt management plan

A default

A bankruptcy

A home repossession

Can you get a low income mortgage if you are self-employed?

Getting a low income mortgage if you are self-employed is certainly possible but most mortgage lenders may want to see your accounts for 3 years at the very minimum although there may be mortgage lenders willing to offer a low income mortgage with less than 3 years worth of accounts but at least 12 months.

The documents you may need as a self -employed mortgage include:

Your P60 tax return

Your SA302 tax calculation form

Your company accounts if you work through a limited company

You may find using the services of a mortgage broker who has experience dealing with self-employed borrowers.

Other considerations a mortgage lender may take into account when offering a low income mortgage to a self-employed are:

The Trading style: are you drawing a salary from a company or do you have a claim over a share of retained profits. These could make a significant difference on how much you may be able to borrow.

Your experience: how long have you been self-employed and what is your working history.

Getting a low income mortgage

To apply for a low income mortgage you may want to first contact a mortgage broker.

Mortgage brokers are important as they can access low income mortgage products from across the whole of the market in some cases. This could be over 1,000 low income mortgage products. This may have some advantages than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which low income mortgage products may be suitable for you.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. This will allow you to shop for your home easier as more estate agents and sellers may take you seriously. Once you have found a home you want to buy the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your low income mortgage with the help of a conveyancer.

In this brief guide, we discussed low-income mortgages. If you have any questions or comments please let us know.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.