Mortgages: Expert advises public amidst rising base rates
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Half of lenders are refusing to give people on benefits a mortgage, because they won’t allow them to use money from State Pension pots or their benefit. This means they face limited choice which can make it harder to get on the housing ladder.
When borrowers apply for a mortgage, lenders look at all their sources of income to see if they can afford the loan. This includes salary, but also things like benefits and pension payments.
Lenders also do not agree on what they count as proper income and what they don’t, which trips many people up.
David Hollingworth, from L&C Mortgages, told Mirror: “I think people can be under the misapprehension that lenders will take their whole income into account.
“They total everything up and expect their lender will accept everything.
“But each type of income can be treated differently, and it can be treated differently by each lender. With Universal Credit, for example, some may only take a proportion into account and some may not allow it at all.”
If you get a company or private pension, all of the 71 mortgage lenders doing standard homeloans class this as income.
That is according to mortgage broker software Criteria Brain, which lists what lenders do and don’t look for.
If you get a state pension, three lenders don’t allow it – but 68 still do.
But things are a bit different if you get Pension Credit, a benefit that tops up the incomes of retirees and helps them have a decent standard of living.
Thirty out of the 71 lenders don’t count this as income.
For example, Santander, NatWest and Barclays allow it – while Kent Reliance and Accord do not.
Eleven lenders don’t allow SIPPs, or self-invested personal pensions, while 22 turn up their noses at drawdown – cash taken out of a pension.
If you have a pension annuity, you get a guaranteed stream of money until you pass away.
Despite the certainty that the money will keep flowing, 12 out of 71 lenders don’t take money from annuities.
Many older borrowers have interest-only mortgages, where they are only paying off the interest.
At the end of their mortgage term they need to repay the loan in full. Some will do this from selling the house, while others want to use pension cash.
But be careful if you do, as only 16 out of 71 lenders will allow this.
The situation for benefits is much worse.
If you get Universal Credit, only 45 percent of lenders accept this – 32 of 71 lenders.
For example, big lenders NatWest, HSBC and Halifax allow it, but Accord, Metro Bank and Virgin Money don’t.
For Child Benefit claimants, 43 lenders oblige – that’s 60 percent.
For Carers Allowance, it’s 31 out of 71 lenders, and for Child Tax Credits, 44 out of 71 lenders – 71 percent.
Mortgage brokers can help track down the best deal for you even if you do fall into any of these categories.
Borrowers should also be aware that these tough rules apply to getting a mortgage with a new lender.
If borrower A gets a mortgage and is not on benefits, but gets benefits by the time they remortgage, they are fine if they do that with their existing lender and don’t move away.
That is because – most of the time – they won’t have to go through affordability checks again if they stay put.
But if they want to swap to another lender they will have to go through the process again – and might find they struggle.
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