A Low Income Mortgage – What Can You Get?

Low income mortgage

August 2022

A Low Income Mortgage – What Can You Get in 2022

If you’re looking to get onto the property ladder in the UK housing market or to find your dream home, having low income can make the application process seem even more complex and make getting mortgage approval seem impossible.

However, it is possible to get a mortgage on a low income. 

There are different ways to go about it, whether it be via specialist lenders who specifically are looking to provide home loans for a low income family, government schemes (such as the Mortgage Guarantee Scheme or the interest free help to buy equity loan scheme) or a guarantor loans.

If all this sounds complicated, don’t worry. This article will get you on track with everything you need to know about the mortgage market and how to get a mortgage on a low income.

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

 

What is low income in the UK?

Income is typically defined as the money that you earn from employment before tax, and it’s used to figure out how much you can borrow for a mortgage.

If you’re employed, your lender will take into account your salary, any bonuses or overtime payments, as well as any other income such as child benefits or maintenance payments.

If you’re self-employed, your lender will use your average profit over the last two or three years to calculate how much you can afford to borrow.

The definition of low income varies from lender to lender. Being on minimum wage doesn’t necessarily make you low income. Typically if your annual income is less than £30,000 a year (or less than £25,000 if you’re applying for a guarantor loan), then you’ll be considered to be on a low income.

What counts towards income on a mortgage application?

As well as your salary, any other money that you have coming in each month can also be taken into account when applying for a mortgage. This includes:

  • Bonus payments
  • Overtime payments
  • Child benefits
  • Maintenance payments
  • Pension payments
  • Rental income 
  • Trust fund income

Can benefits be included on a mortgage application for income?

If you’re claiming benefits, you might be wondering if these can be included in your income when applying for a mortgage. The answer is that it will depend both on the type of benefit and the mortgage lender.

Some benefits, such as child benefits, disability benefits, industrial injuries benefit or incapacity benefit, can be included in your income. However, other benefits, such as jobseeker’s allowance or housing benefit, are not typically included.

It’s always advisable to double check with your mortgage lender to see what their policy is on including benefits in your income calculation.

What documents do I need to prove my income?

When you’re applying for a mortgage, you’ll need to provide proof of your income. This might be in the form of payslips, P60s, tax returns or accounts if you’re self-employed.

If you’re employed, most UK mortgage lenders will require at least three months’ worth of payslips. If you’re self-employed, you’ll typically need to provide two or three years’ worth of accounts.

How do mortgage underwriters verify my income?

As well as looking at your income documents, mortgage underwriters will also carry out a credit check. This is to verify that the information you’ve provided is accurate and to make sure that you’re able to afford the repayments.

In addition, they will look at your employment history to make sure that you’ve been in continuous employment for a certain period of time (in general, two years). They may also wish to see payslips, bank statements or utility bills.

home loans for a low income family

What exactly is a low income mortgage?

A low income mortgage is simply a mortgage designed for people who are earning a low income; they generally have lower minimum income requirements and might be suitable for low income applicants or low-income borrowers who are on minimum wage or self-employed. 

There are a few different types of low income mortgages available, and we’ll go through these in more detail below.

One of the primary things to remember with a low-income mortgage is that you might have to make some trade-offs in order to get mortgage approval. For example, you might have to accept a higher interest rate or a smaller loan amount.

It’s also worth bearing in mind that incomes can change over time, so if your income increases, you might be able to switch to a different type of mortgage later on.

"If you're self-employed, your lender will use your average profit over the last two or three years to calculate how much you can afford to borrow."

What are the different types of low income mortgage?

There are three main types of low income mortgage.

Specialist lenders

If you’re looking for a low income mortgage, your first port of call should be a specialist lender.

These are lenders who offer mortgage products specifically designed for people who may not meet the exacting criteria of high street banks and building societies. These mortgage providers will have a specially designed home loan for low income families.

For example, some will accept applicants with a lower income, or those who have had previous credit problems.

The downside of these lenders is that they often charge higher rates of interest than most lenders.

However, this is still likely to be cheaper than going for a guarantor loan or a government-backed scheme.

how to get a mortgage on a low income

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Government-backed schemes

There are two major government-backed schemes that could help you get a low income mortgage:

Help to Buy

The Help to Buy equity loan scheme is open to first-time buyers and existing homeowners who want to buy a new build property.

It’s available on properties up to £600,000 in England (or £300,000 if you’re in Scotland, Wales or Northern Ireland).

Under the scheme, you’ll only need a 5% deposit and the government will provide a 20% equity loan (or 40% equity loan in London), which means you’ll only need to get a 75% mortgage.

Shared ownership

The other government-backed scheme is shared ownership, which is available to first-time buyers and existing homeowners who want to buy a property that’s part of a housing association.

With shared ownership, you’ll only need to take out a mortgage on the share of the property that you’re buying (usually between 25% and 75%).

You then pay rent on the remaining share.

To be eligible for either of these schemes, you’ll need to have a household income of less than £80,000 a year (or £90,000 in London).

Right to buy 

This scheme offers council and housing association tenants in England a discount to help them buy their homes.

Guarantor mortgages

If you’re struggling to get a mortgage on low income, another option is to go for a guarantor mortgage.

With this type of mortgage, you’ll need someone (usually a parent or close relative) to act as a guarantor.

This is not a joint mortgage. Instead, it means your guarantor will be responsible for making the monthly payments if you can’t.

Guarantor loans usually have lower rates of interest than standard mortgages, but they’re still higher than what you’d get from a mainstream lender.

minimum income for mortgage

How much can I borrow on a low income mortgage?

The amount you can borrow on a low income mortgage will depend on a few different factors, including your income, outgoings and credit history. If you’ve missed any loan or credit card payments in the past, this could impact your mortgage eligibility.

Generally speaking, the higher your income, the more you’ll be able to borrow.

However, this is not always the case, as many lenders will also take into account your outgoings (such as bills and debts) when they’re working out how much you can afford to repay each month.

 

How much deposit do I need for a mortgage with a low income?

The deposit is the amount of money you’ll need to put down when you take out a mortgage.

While there is no specific minimum income for a mortgage, the minimum deposit you’ll need for a mortgage is 5% of the property’s purchase price.

However, if you’re looking for a low income mortgage, you might find that lenders require a higher mortgage deposit, typically around 10%.

How can I boost my deposit for a mortgage with a low income?

If you’re struggling to come up with a deposit, there are a few options available to you.

Ask for a gifted deposit

One option is to ask a close family member (such as a parent or grandparent) to give you the money for your deposit.

This is known as a gifted deposit.

minimum salary for mortgage

Sell assets to get a deposit for a low income mortgage

Another option is to sell any assets you have, such as a car or jewellery. This could give you the boost you need to reach your deposit goal. It’s also sensible to try and pay off other debts to demonstrate your financial security.

Save for a deposit for a low income mortgage

If you don’t have any assets to sell, another option is to start saving for a deposit.

You could open up savings accounts and save money each month. The sooner you start saving, the more time you’ll have to reach your goal. 

Ask a family member to use their home as security

If you’re still struggling to come up with a deposit, you could ask a member of your family to use their home as security for your loan. This is known as a guarantor loan (different to a joint mortgage).

With this type of mortgage, your family member will be responsible for making the repayments if you can’t. Before you take out a guarantor loan, make sure you understand the risks involved.

Ask a member of your family to use their savings to offset the risk

If you’re worried about asking a member of your family or household to use their home as security, another option is to ask them to use their savings to offset the risk.

This means that they’ll agree to put their savings into an account which you can use if you can’t make your mortgage repayments.

home loan for low income families

What are the interest rates on low income mortgages?

Rates of interest on low income mortgages can vary depending on the type of mortgage and the lender you decide on.

As a general rule, though, rates of interest on low income mortgages are higher than standard mortgage rates.

This is because lenders perceive people with low incomes to be a higher risk, so they charge higher rates of interest to offset this risk.

What are the fees for low income mortgages?

Fees for low income mortgages can vary depending on the type of mortgage and the lender you go with.

As a general rule, though, fees for low income mortgages are higher than standard mortgage rates.

This is because lenders perceive people with low incomes to be a higher risk, so they charge higher fees to offset this risk.

I still have questions about low income mortgages; what do I do?

Below, we try and answer some of the most common questions about low income mortgages. However, if you still have concerns or questions, it might be worth trying to contact a mortgage broker or online mortgage advisor who will be able to advise you further.

Can I get a mortgage if I am on a zero-hours contract?

The short answer is yes. You can get a mortgage if you’re a zero-hours contract.

However, it might be more challenging to find a lender who’s willing to give you a mortgage. This is because lenders see zero-hour contract workers as being a higher risk.

If you’re struggling to find a lender who’s willing to give you a mortgage, it might be worth trying to speak to a mortgage broker. They’ll be able to advise you further and help you find a suitable lender.

loan for low income

I am self-employed. Can I get a low income mortgage?

Yes, self-employed people can apply for low income mortgages. However, finding a lender that is ready to give you a mortgage may be more difficult. This is due to the fact that lenders consider self-employed people to be a more significant hazard.

Can I apply for a mortgage on UK minimum wage?

While there’s no law saying that you can’t apply for a mortgage on this salary, it might be more difficult to find a lender who’s willing to give you a mortgage deal. While there is no minimum salary for mortgage lenders, in general, mortgage providers consider people on minimum wage to be a greater risk.

Do mortgage lenders contact my employer?

As part of the application process, most lenders will contact your employer to verify your approximate annual income.

They’ll usually do this by asking you to send the mortgage provider your most recent payslips and/or asking your employer to fill out a form confirming your annual salary.

Can I get a mortgage with low income and bad credit?

It is possible to get a mortgage on a low income and bad credit, although it might be more difficult to find a lender who’s willing to give you a mortgage. This is because lenders see people with low incomes and bad credit as being a higher risk.

If you’re struggling to find a lender who’s willing to give you a mortgage, it might be worth trying to speak to a mortgage broker. Mortgage brokers will be able to advise you further and help you find a suitable lender.

Should I lie about my income on a mortgage application?

No, you should not lie about your income on an application. Mortgage providers lending to borrowers in any income bracket will verify their income as part of the application process. If they find that you have lied about your income, they may reject your application or even pursue legal action against you.  

Is a low income mortgage right for me?

A low income mortgage could be right for you if you’re struggling to get a mortgage because of your income.

The downside is that interest rates and fees are usually higher than what you’d pay on a standard mortgage.

However, if you’re struggling to find a lender who’s willing to give you a mortgage, it might be worth considering a low income mortgage.

Remember, this article does not officially constitute financial advice: a mortgage broker or online mortgage advisor will be able to provide mortgage advice and help you find a suitable lender.

Over 55 and a home owner? Try our equity release calculator and see how much money you can get from your house, tax-free, in 30 seconds

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Learn More About Mortgages In The UK

How do mortgages work in the UK?

Buying a home or land is expensive. A mortgage is a financial product that helps people purchase their own home or land.This is especially true for a first time buyer, as it might be the only route onto the property ladder.

The minimum credit score for a mortgage

ou can still be approved for a mortgage to buy a property if you have a poor credit score. However, someone with a poor credit score will probably have a higher interest rate than someone whose credit score is good. Buyers with a low credit score may also need to pay a bigger deposit.

fixed term Contract Mortgages

A fixed term contract is a way of describing certain types of employment. If your current employment contract is due to end after a certain period of time, or after a specific piece of work is complete, you are likely on a fixed term contract. 

how long does a mortgage application take?

After sending off the final application waiting for the decision can be frustrating. Many prospective homeowners ask ‘how long does it take?’ but the truth is the mortgage approval process is always different for each customer.

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The entire conveyancing process will normally take anywhere between 8-12 weeks, however you should be prepared for this to take much longer depending on your circumstances and wider factors. This articles explores what the timescale involves.

Mortgages if You are bankrupt

There is no hard and fast rule when it comes to what lenders will accept your mortgage application if you want to get a mortgage after bankruptcy. They will lend to discharged bankrupts and consider each case individually. 

what stops you getting a mortgage?

Everyone wants to get the best deal when it comes to buying a home and getting a mortgage when they buy a home. However, being too ambitious can lead to your application being rejected. 

how much do mortgage advisors charge?

Fees for mortgage brokers can be off-putting. A mortgage is an expensive financial product, and often buyers want to save as much money as possible. This might limit their options when it comes to using a mortgage broker.  However, not everyone advisor charges a fee.

IVA Mortgage

When you have an IVA, mortgage acceptance is still possible. However, involuntary agreement mortgage lenders can be hard to find. Typically, a high street company will be more less keen to give you a mortgage. 

Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – [email protected]

Frequently Asked Questions

What is low income in the UK?

The definition of low income varies from lender to lender. Being on minimum wage doesn’t necessarily make you low income. Typically if your annual income is less than £30,000 a year (or less than £25,000 if you’re applying for a guarantor loan), then you’ll be considered to be on a low income.

Can benefits be included on a mortgage application for income?

If you’re claiming benefits, you might be wondering if these can be included in your income when applying for a mortgage. The answer is that it will depend both on the type of benefit and the mortgage lender.

How do mortgage underwriters verify my income?

As well as looking at your income documents, mortgage underwriters will also carry out a credit check. This is to verify that the information you’ve provided is accurate and to make sure that you’re able to afford the repayments.

I am self-employed. Can I get a low income mortgage?

Yes, self-employed people can apply for low income mortgages. However, finding a lender that is ready to give you a mortgage may be more difficult. This is due to the fact that lenders consider self-employed people to be a more significant hazard.

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