In this brief guide, we are going to discuss “how to get a mortgage on a low income”.

It is very possible to get a mortgage on a low income but you may very well need to take advantage of any mortgage schemes, government schemes or similar which help you increase your mortgage affordability and increase the likelihood of a mortgage lender approving you for a mortgage.

In the end, the main challenge with getting a mortgage in a low income is being able to prove to the mortgage lender that you can afford and continue to afford the monthly mortgage repayments over the complete mortgage term.

How to get a mortgage on a low income

There are a few steps you will need to take to get a mortgage on a low income, we have listed them below:

  • Reduce your debt to income ratio
  • Increase your disposable income
  • Increase your credit score
  • Put a good mortgage deposit down
  • Get a Government scheme
  • Use a joint mortgage
  • Use a guarantor
  • Use a family deposit mortgage
  • Use a mortgage broker

Reduce your debt to income ratio

If you want to get a mortgage on a low-income then one of the very first things you will want to do is to reduce your debt to income ratio.

Your debt to income ratio is a ratio that displays what your monthly debt expenditure is in contrast to your gross monthly income.

Your debt to income ratio is very important to mortgage lenders and will be a big factor when considering if you can get a mortgage on a low income. 

Your debt to income ratio is very important as it determines your monthly disposable income which you can then use to repay your monthly mortgage repayment each month.

Reducing your debt to income ratio will, therefore, increase your mortgage affordability as you will have much more monthly disposable income to spend on repaying your mortgage each month.

You can reduce your debt to income ratio by refinancing some of your current debts.  

This could be a car refinance, a loan refinance or even a remortgage.

You can calculate your debt to income ratio by adding up all your monthly debt repayments each month and dividing this by your gross monthly income (your monthly income before tax).

Increase your disposable income

If you want to get a mortgage on a low income then you will want to increase your monthly disposable income.

Increasing your disposable income will mean that you will have more money to contribute towards your monthly mortgage deposit contribution.

You can increase your monthly disposable income by getting a second job or getting a new job.

Another great way to ensure you can increase your disposable income and have much more money to get a mortgage on a low income is by reducing your expenses.

Increase your credit score

One way to ensure you can get a mortgage on a low income is by increasing your credit score so a mortgage lender could see you as being more creditworthy.

When a mortgage lender decides on if they will lend to a borrower or not they will want to first assess your mortgage affordability.

Your credit score forms apart of your mortgage affordability and those with higher credit scores will usually get offered better mortgage rates.

If you want to get a mortgage on a low income it is therefore very important that your credit score is at its highest as this will put you in a very good position.

What is your credit score & history?

Your credit score and history is a reprot which displays your credit behavour for a set period of time. In the UK your credit score displays your credit behaviour for the past 6 years.

Your credit score will contain information supplied to the credit bureuas (usually on a monthly basis) by credit providers and utility providers which you have agreements with.

Your credit reportt may also contain rent reporting data.

Your credit score will also contain data such as:

  • If you are registered in the ecltoral roll and at what adress
  • All credit accounts you have had within the last 6 years. Open and closed accounts
  • All public court records which may affect your ceditworthiness such as the country court records, the banlruptcy records
  • Your credit report may also contain information from organisations such as CIFAS.

How to build your credit score and history

Pay your bills on time and in full

-Expand your credit. The more types of credit you have which are all paid on time the better your score.

-Register to vote on your main home address

-If you rent and pay your rent on time, then report this to the credit bureaus.

-Ask for a credit limit increase

-Check your credit report for any errors

-Don’t close or cancel Bank accounts or credit cards. The longer you have these open, the better.

-Use only 30% of your available credit such as overdraft or credit cards. This shows that you are not too dependent on credit

-Do not make too many credit applications within 3 months. 1 every 3 months is is acceptable.

-Avoid getting rejected for credit and only make applications where you have a 95% chance of approval or are pre-approved.

-Avoid adverse credit such as payday loans

-Avoid maxing out your credit card or going over your limit as it makes you seem dependent on credit. You might also incur a few fees from your credit card provider.

-Ensure you do not default on any repayments-, even if this is not credit as you can still have negative marks due to owing people or companies from things such as county court judgements, Bankruptcy or Individual voluntary agreements.

Always inform your credit provider if you are having difficulty and they could work something out with you rather than selling your debt to a collection agency which will cost you more

Put a good mortgage deposit down

If you want to get a mortgage on a low income then you will usually need to have a god mortgage deposit as this will help you reduce your loan to value and hence may qualify you for a better mortgage rate.

Most mortgage lenders will require a mortgage deposit of 5% of the property price but this may be different depending on your mortgage affordability.

If you are unable to afford a mortgage deposit beyond 5% and re sure this will guarantee you a better mortgage rate then it may be in your interest to put a bigger mortgage deposit down.

If you are unable to put a good mortgage deposit down then you may be able to use a gifted deposit from your family and friends.

You should be aware that most mortgage lenders will require that you use their own mortgage deposit letter template to ensure that the money being given to you b the family member is indeed a gift and not a loan which could have a claim on the property.

You can use a mortgage deposit calculator to see how much your mortgage deposit could be.

One of the ways to boost your mortgage deposit is by using a government scheme.

Get a Government scheme

If you want to get a mortgage on a low-income then you may want to touse a government scheme which will help you get on the property ladder faster or with less of your money upfront.

These Government schemes are available to both first-time buyers and home movers.

These schemes include:

Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.

Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.

Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.

Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.

Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.

Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.

Right to buy– allows you to buy your home at a discount price.

Preserved right to buy- same as above.

Right to acquire- same as above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Use a joint mortgage

One key way to get a mortgage on a low income is by getting a joint mortgage on a low income.

A joint mortgage will allow you to put the resources of two or more people together and hence increase your mortgage affordability even with a low income.

Getting a joint mortgage will have other factors which you may want to consider such as if you want to have a tenant in common agreement or not.

Use a guarantor

Another key way to ensure you are able to get a mortgage on a low income is to get a guarantor.

A guarantor will allow you to get a guarantor mortgage whereby the guarantor underwrites most of or all of the risks of the mortgage.

Guarantor mortgages may also allow you to access much cheaper mortgage rates and hence increase your mortgage affordability. 

Use a family deposit mortgage

If you are on a low income then another way to can get a mortgage is by using family deposit schemes which are now offered by mortgage lenders such as Halifax with its Halifax family boost mortgage, Lloyds bank with its Lloyds lend a hand mortgage or Barclays with the Barclays springboard mortgage.

A family deposit mortgage will require your family member to put money away for a fixed amount of time.

This is usually in a linked savings account and family deposit mortgages usually allow these funds to serve as some form of down payment which reduces the mortgage lenders risk.

The money is however returned to your family member after the fixed time period is over.

In some cases, a family deposit mortgage will serve as an offset mortgage but this isn’t the case with all mortgage lenders.

Get a co-buyer

Another way you can get a mortgage on a low income is by getting a co-buyer.

A co-buyer will allow you to pull your financial resources together and increase your mortgage affordability.

Before deciding on a co-buyer, you must ensure you check that they not only have the finances they say they have but theta they also have a good credit score.

Use a mortgage broker

You may want to consider using an independent mortgage broker to get a mortgage.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

In this brief guide, we discussed “how to get a mortgage on a low income”.

If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.