Millions of people across Scotland and the rest of the UK receiving regular benefits from the Department for Work and Pensions (DWP) or HM Revenue and Customs (HMRC) are being warned about payment bans being implemented by some banks.
A proportion of the 71 mortgage lenders across the country will not give people on benefits, including Universal Credit, Carer’s Allowance, Child Benefit or State Pension a mortgage, because they do not consider these payments as ‘proper income’ when considering an application.
This could mean that people receiving essential financial support may face a limited choice when it comes to applying for a mortgage.
Mortgage lenders look at all sources of income to see if a potential borrower will be able to afford the loan - this usually includes salary, bonds and premium payments, plus other sources of income such as benefits and pensions.
However, Mirror Online reports that many UK lenders only take specific types of income into account and not others.
Lenders also do not agree on what they count as ‘proper income’ and what they don't, which may be a blow for many potential mortgage applicants.
David Hollingworth, from L&C Mortgages, explains: "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."
How benefits and pensions can affect mortgage applications
Mortgage broker software, Criteria Brain, lists what lenders do and do not look for when it comes to income.
Private or workplace pensions
If you receive a company or private pension, all 71 UK mortgage lenders doing standard home loans class this as income.
State Pension
If you receive State Pension payments, 68 lenders will consider it as ‘proper income’ - but three do not.
Pension Credit
Pension Credit is a top-up benefit worth up to £3,000 each year for people already claiming State Pension.
There are 41 lenders accepting this as ‘proper income’ including Santander, NatWest and Barclays.
There are 30 lenders who do not include it.
Self-Invested Personal Pensions (SIPPs)
There are 11 lenders who do not consider SIPPs and 22 who do not accept drawdown - cash taken out of a pension.
Pension Annuity
If you have a pension annuity, you get a guaranteed stream of money until you pass away, however, despite that guaranteed income, 12 out of 71 lenders don't consider money from annuities.
Older borrowers
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 their house, while others want to use cash from a pension - but only 16 out of 71 lenders will allow this.
Universal Credit
Only 32 out of the 71 lenders will consider this as ‘proper income’.
For example, big lenders NatWest, HSBC and Halifax allow it, but Accord, Metro Bank and Virgin Money do not.
Child Benefit
For Child Benefit claimants, 43 lenders will consider it.
Carer’s Allowance
For Carers Allowance, 31 out of 71 lenders will consider it.
Child Tax Credits
For Child Tax Credits, 44 out of 71 lenders will consider it.
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 may find they struggle for approval.
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