Can you get a mortgage on benefits?

The UK housing market is tough. Rents continue to go up, incomes stagnate and the cost of living well outstrips what most people are earning. House prices and mortgage rates are sky-high too, but for many people securing a mortgage at all can seem out of reach.

Getting a mortgage on benefits is possible, but there are some challenges. Mortgage lenders generally want to see that you can afford your repayments and that your income is reliable. Some lenders will consider social security payments to be part of your income when assessing your application, but it depends on the type of benefits you receive and your overall financial situation.

If you’re supplementing benefits with earnings from employment, that can improve your chances significantly. Welfare payments including child benefit, pension credit or disability living allowance are more often seen by lenders as income they’re happy to rely on long-term, but short-term benefits like jobseeker’s allowance might not be. A lot of people once on so-called legacy benefits will now have been moved to universal credit – if that’s you, the reason you receive universal credit can make a difference too.

How to get a mortgage on benefits

Getting a mortgage when you’re receiving benefits involves jumping through a few more hoops than someone whose income comes entirely from employment, or who has a lot of wealth to fall back on. Lenders base their decisions on affordability so they need to be confident that you’ll be able to keep up with mortgage repayments. If you rely on benefits, especially if they’re your primary source of income, the lender will scrutinise how stable and long-term those benefits are.

The first thing to check is your overall income, if you haven’t already. When you’re at the stage of applying for a mortgage you’ll need to provide proof of all your income streams, including benefit statements, payslips and tax records.

Credit history is another important factor – lenders are cautious about giving mortgages to people with poor credit scores, but a strong credit history can improve your chances even if your income is on the lower end. Make sure your debts are paid off or under control, and check your credit report for any issues before applying for a mortgage. And even if buying a home doesn’t seem like something that’s on the cards for you, contacting expert organisations like StepChange for free debt advice is a vital first step in protecting your future finances.

A lot of people are in a position to pay off a mortgage, but can’t afford to save enough for a deposit (which could be anything from 5% to 20% of the overall home price). If you’re struggling with the deposit, government schemes like Help to Buy or Shared Ownership can sometimes help reduce the upfront costs of buying a home. These schemes, in basic terms, let you buy a percentage of a home and pay rent on the rest. 

People in England might qualify for the First Homes scheme, through which eligible buyers get a 30-50% discount on the final house price, meaning deposits and monthly repayments are both vastly reduced. 

The HOLD scheme – Home Ownership for People with Long-term Disabilities – is specifically designed to make homeownership a possibility for more disabled people. 

Under the scheme, you can buy a portion of a property – typically between 25% and 75% of its market value – and then pay rent on the remaining share, like shared ownership. But it’s only available if you have specific access requirements and other shared ownership options don’t suit your particular needs.

It’s worth your time to speak to a specialist mortgage broker, if possible – some advisers focus on working with people who have non-standard income, such as benefits, and they might have access to lenders who are more flexible in their approach.

Employed and claiming benefits

Around 40% of people on universal credit are in work – working tax credit and child benefit are also fairly commonly claimed by people with jobs – and those who are employed but receive benefits to top up a low income have a much better chance of getting a mortgage. 

The goal is to show that your income, including benefits, is stable. Lenders like consistency, so if you’ve been in your job for a while and receive benefits based on conditions that are unlikely to change, this will work in your favour. Lenders could ask you to provide evidence of your employment, like wage packets or a letter from your employer, along with benefit statements to show that your income isn’t going to fall any time soon.

Certain long-term benefits, like disability living allowance (DLA) or personal independent payment (PIP), are sometimes accepted more readily by lenders because they’re considered reliable forms of income. Short-term or conditional benefits are usually much harder to base a successful mortgage application on, because the lender cares about how long you’ve been receiving a benefit as well as what type it is.

Unemployed and claiming benefits

If you’re unemployed and rely solely on benefits, getting a mortgage becomes much more challenging. Most lenders prefer to see a mix of income sources and benefits alone might not be enough to convince them you can afford the repayments. But you might boost your chances if you’re in a position to pay a large deposit, or have a strong guarantor willing to cover your payments if you’re unable to.

Mortgage lenders view long-term benefits like pension credit, DLA or PIP as more stable than, for example, new-style jobseeker’s allowance.

In some cases you might be able to apply for a Support for Mortgage Interest (SMI) loan if you already own a property. SMI helps cover the interest payments on your mortgage and is available to people claiming benefits like universal credit or income support, but it needs to be repaid with interest when you sell your home. .

Which mortgage lenders accept benefits?

Not all lenders accept benefits like universal credit as part of your income. Major high street banks often have stricter lending criteria and might not consider benefits at all, or only certain types – Halifax and Nationwide are among those you might have better luck with. But some lenders, particularly building societies and specialist mortgage providers, sometimes have a bit more flexibility.

These lenders are more likely to assess applications on a case-by-case basis, taking into account the type of benefits you receive and whether they provide a stable income, rather than immediately refuse someone whose income comes partly from welfare payments. 

That’s why it’s a good idea to shop around or work with a broker who specialises in getting mortgages for people on lower incomes – they’ll know which lenders to try first, and which lenders aren’t worth spending time applying to.

What benefits count as income for a mortgage?

Benefits aren’t all treated equally when it comes to applying for a mortgage. Again, lenders generally favour long-term benefits that they consider stable – this typically includes DLA, PIP, pension credit, working tax credit and child benefit.

Temporary benefits like employment and support allowance (ESA) tend not to be counted, especially when they’re means-tested or time-limited.

Should I buy a house or rent a house if I receive benefits?

Deciding whether to buy or rent a house while on benefits depends on your financial situation and long-term goals. Both options have their pros and cons, but it ultimately comes down to what’s realistic for you, and it’s important to take into account the UK’s housing crisis.

Renting tends to mean more flexibility, especially if you’re unsure about your long-term income. It’s generally easier to qualify for help with rent than for a mortgage, and if you’re eligible for universal credit, those payments could cover part of your rent​.

If affording private rent is a struggle, you might qualify for a council house or social housing. People on lower incomes are prioritised for these homes, but be prepared to sit on a waiting list for months or even years – demand is well outstripping supply in the UK.

Buying a home can offer stability and the chance to build equity, but the upfront costs are much higher. You’ll need a deposit, legal fees and the cash to cover the ongoing maintenance which would be paid by a landlord in a privately rented home – all of this can be a real challenge for people trying to make ends meet on a low income.

There are other extra costs you’ll need to factor into your budget from the start if you buy a home. That includes building insurance, which is usually a requirement from mortgage lenders, and which covers the structure of your home against damage from things like fires, floods or storms. The cost of building insurance can vary depending on the location of your house or flat, the materials it’s made from and its size. It’s essential to budget for this to make sure that you won’t be faced with hefty repair costs if something happens to the property.

Maintenance and repair costs can include anything from fixing a leaking roof to replacing a boiler or the upkeep of a garden. These expenses can really add up over time. Some of them might instead be covered by a service charge if you live in a home that’s part of a managed estate, which you’ll usually have to pay as a lump sum annually or twice a year.

Some people on lower incomes who successfully apply for a mortgage opt to – or have no choice but to – go for a mortgage with a longer term, because it means monthly repayments are less expensive than mortgaged with a shooter term.

“Given that interest rates have been rising since the end of last year, buying a home has become increasingly expensive, so for many going for a longer term can be a useful way to make monthly payments more affordable,” said Lisa Parker, a mortgage expert at L&C Mortgages. But it means you’ll end up reducing your mortgage balance much more slowly and paying a lot more interest as a result. 

“For example, based on a £125,000 repayment mortgage at a rate of 4% over a 25-year term, monthly payments would cost £660 and total interest paid would amount to £72,939,” she said. “If you opted for a 35-year mortgage term, however, monthly payments would reduce to £553, but the interest bill would jump to £107,457.

“Another drawback of opting for a mortgage with a 35 or 40-year term is that you’re likely to still be paying off what you owe well into your 70s. That means you’ll either need to be prepared to continue working well into retirement, or you’ll need to be able to demonstrate to lenders that you’ll have a sufficient pension or other income to be able to keep paying your mortgage once you’ve retired.”

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