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With house prices at an all-time high, it can seem like an uphill struggle to get a mortgage, and you may be wondering if you have enough income to get a mortgage: this guide explains all you need to know about securing a mortgage with low income.
Can I get a mortgage with low income?
It is possible to get a mortgage with a low income, but it will depend on the level of your income as well as your outgoings and commitments, among other factors. If you are unable to secure a large mortgage, you may need a large deposit.
What Income can be used for a mortgage?
- Employed income: income from a regular job with an employer
- Self-employed income: income earned through running your own business or being a freelancer
- Rental income: income earned from renting out a property you own
- Pension income: income received from a pension plan
- Maintenance income: income received from a former spouse or partner as part of a legal agreement
- Stipend: a fixed regular sum paid as a salary or allowance
- Investment income: income earned from investments such as stocks, shares or rental properties
- Commission: income earned as a commission-based salesperson
- Bonus income: income earned as a bonus for good performance at work
- Overtime income: income earned from working extra hours beyond your regular working hours.
What outgoings are considered for a mortgage?
When applying for a mortgage, lenders will consider various outgoings to determine affordability. Some of the outgoings that count for a mortgage include:
- Household bills: This includes the cost of utilities such as gas, electricity, water, and council tax.
- Debts: This includes any outstanding debts such as credit card balances, loans, or car finance.
- Other regular payments: This includes any other regular payments such as child maintenance or school fees.
- Insurance: This includes the cost of home insurance, life insurance, and any other types of insurance that you may have.
- Living expenses: This includes the cost of groceries, transportation, and any other essential living expenses.
- Other financial commitments: This includes any other financial commitments you may have, such as regular savings or investments.
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What is the minimum income required to get a mortgage?
It is correct that there is usually no set minimum income required for a mortgage, as affordability is the key factor in the lending decision. However, it can be more challenging to get a mortgage with a lower income.
While it is possible to get a mortgage with an income of around £15,000, it would depend on other factors such as outgoings, credit score, and the size of the deposit. Generally, a minimum income of £20,000 is considered more ideal for getting a mortgage.
What can be used as a deposit for a mortgage?
- Savings: This is the most common form of deposit for a mortgage, and involves using money that you have saved up in a bank account or other savings vehicle.
- Gift: You may be able to use a monetary gift from a family member or friend towards your deposit. Some lenders will require a gift letter to confirm that the money does not need to be repaid.
- Equity in property: If you already own a property, you may be able to use the equity you have built up as a deposit for your new mortgage.
- Pension: Some lenders will allow you to use your pension as a deposit, although this is a complex area and you should seek financial advice before doing so.
- Inheritance: If you have received an inheritance, you may be able to use some or all of it towards your deposit.
- Personal loan deposit: Some mortgage providers allow you to use a personal loan as a deposit, it’s worth mentioning most do not and you will have far more options with other deposit sources.
- Gifted equity in concessionary purchase: This is when the seller of a property agrees to gift a portion of the equity in the property to the buyer to use as a deposit.
- Discounted equity on right to buy: This is a scheme that allows council tenants to purchase their home at a discounted rate, and the discount can be used towards the deposit on a mortgage.
For more information about how mortgage deposits work, read our blog.
How can you improve your chances of getting a mortgage with low income?
Improve your chances of getting a bigger mortgage with a low income. Here are some expanded bullet points:
- Larger deposit: saving up for a larger deposit can help reduce the amount of the mortgage you need, which may make you a more attractive borrower to lenders.
- Good credit score: maintaining a good credit score can help demonstrate to lenders that you are responsible with credit and may increase your chances of getting approved for a mortgage.
- Use other income: if you have other sources of income, such as rental income or benefits, this can be used to help boost your overall income and may increase the amount you can borrow.
- Use a mortgage broker: a mortgage broker can help you find lenders who are more likely to approve your application, and may have access to deals that are not available to the general public.
- Pay off debt: paying off debt can help reduce your outgoings and improve your debt-to-income ratio, which is a factor that lenders consider when assessing your application.
- Take extended mortgage term: extending the term of your mortgage can help reduce your monthly repayments and make it more affordable. However, keep in mind that this will increase the total amount of interest you pay over the life of the mortgage.
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What options do you have if you can’t borrow enough on your own?
Here’s a few options if you can’t afford the type of property you require
- Buy elsewhere: Consider buying in a different area where house prices are lower or where you may be able to find a property that fits your budget.
- Gifted deposit: If you are struggling to save enough for a deposit, you may be able to receive a gift deposit from family or friends. This is when someone gives you money to use as your deposit.
- Joint mortgage: A joint mortgage can help you to borrow more money if you apply with someone else, such as a partner or family member. This can increase your overall income and borrowing power.
- Joint borrower sole proprietor: Another option is a joint borrower sole proprietor mortgage, which allows you to apply for a mortgage with someone else but only one of you will be named on the title deeds and be responsible for paying the mortgage.
- Wait and save up: You may need to wait and save up for a larger deposit or for your income to increase before you can borrow the amount you need.
- Guarantor mortgage: a guarantor can also help you to borrow more. This is when someone else, usually a family member, agrees to take responsibility for your mortgage payments if you are unable to make them. However, not all lenders offer guarantor mortgages, and the guarantor will need to meet certain eligibility criteria.
Speak to an advisor today, to lock you in with the best deal.
How can Strive Mortgages help?
Working with a mortgage broker like Strive Mortgages can be helpful in securing a mortgage with low income by using their knowledge and expertise of the market to identify suitable lenders and mortgage products.
They can also advise on ways to improve your chances of being approved for a mortgage, such as finding ways to increase your deposit or identifying alternative sources of income. Additionally, a mortgage broker can help with the application process, ensuring that it is completed correctly and providing support throughout the entire process.
For more information on low income mortgages, please contact a member of the Strive team, by emailing [email protected] or call us on 01273 002697.
Frequently asked questions on getting a mortgage on low income
Yes, it’s possible to get a mortgage on an income of £20,000 per year, but the available options may be limited and the amount you can borrow will depend on various factors, including your outgoings, credit score, and deposit amount. It’s always best to speak to a mortgage advisor who can assess your individual circumstances and advise on the best course of action.
It’s highly unlikely to get a residential mortgage with no income in the UK. Lenders will require proof of income to assess affordability and ability to repay the mortgage. However, if you want to invest in a rental property, it may be possible to get a buy-to-let mortgage without personal income if the rental income is sufficient to cover the mortgage payments and other expenses.
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