Half of lenders refuse to give mortgages to benefit recipients because they do not allow them to use money from state pension funds or their benefits. This means they face limited choice, which can make it more difficult to access 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 disagree on what they consider appropriate income and what they don’t, which is tripping up many people.
David Hollingworth of L&C Mortgages said Mirror“I think people may mistakenly believe that lenders will take into account all of their income.
“They total everything and expect their lender to accept everything.
“But each type of income may be treated differently, and it may be treated differently by each lender. With Universal Credit, for example, some may only consider a proportion and some may not allow it at all.”
Find out more: Check if you are entitled to a reduction or exemption from housing tax
If you get a company or private pension, all 71 mortgage lenders who provide standard home loans classify that as income.
That’s according to mortgage broker software Criteria Brain, which lists what lenders do and don’t look for.
If you receive 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 supplements retirees’ income and helps them have a decent standard of living.
Thirty of the 71 lenders do not count this as income.
For example, Santander, NatWest and Barclays allow it, but Kent Reliance and Accord do not.
Eleven lenders don’t allow SIPPs, or self-invested personal pensions, while 22 don’t care about levies – money taken from a pension.
If you have a retirement pension, you benefit from a guaranteed cash flow until your death.
Despite the certainty that the money will continue to flow, 12 out of 71 lenders do not take money from the annuities.
If you get Universal Credit, only 45% of lenders accept it – 32 out of 71 lenders.
For example, major lenders NatWest, HSBC, and Halifax allow it, but Accord, Metro Bank, and Virgin Money do not.
For applicants for family allowances, 43 lenders oblige – that’s 60%.
For carer’s allowance, it’s 31 lenders out of 71, and for child tax credits, 44 lenders out of 71-71%.
Mortgage brokers can help you find the best deal, even if you fall into one of these categories.
Borrowers should also be aware that these strict rules apply to getting a mortgage from a new lender.
If Borrower A gets a mortgage and gets no benefits, but gets benefits when they repay, there’s no problem if they do it with their current lender and don’t s don’t walk away.
That’s because – most of the time – they won’t have to go through accessibility checks again if they stay put.
But if they want to swap with another lender, they’ll have to start the process all over again – and could run into trouble.