People who currently receive Universal Credit and State Pension are warned about new payment bans introduced by some banks.
Some lenders are refusing to give mortgages to benefit recipients because they won’t allow them to use their Universal Credit or state pension money, Manchester Evening News reports.
This means they face limited choice and may find it more difficult to access the housing ladder.
The problem is that in order for borrowers to get a mortgage, lenders look at all their sources of income to see if they can afford the loan.
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This includes salary, but also things like benefits and pension payments.
Many only take into account certain types of income and not others, which may come as a surprise to many.
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: “I think people may be under the mistaken impression 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 can be treated differently, and it can be treated differently by each lender.
“With Universal Credit, for example, some may only consider a proportion and others may not allow it at all.”
For example, 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 get a state pension, three UK 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.
But despite this certainty that the money will continue to flow, 12 out of 71 lenders do not take money from the annuities.
Many older borrowers have interest-only mortgages, where they only pay the interest.
At the end of their mortgage term, they must repay the loan in full. Some will do this by selling the house, while others will want to use the pension money.
But be careful if you do, as only 16 out of 71 lenders will allow it.
The benefit situation is much worse, says the Mirror.
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 child benefit claimants, 43 out of 71 lenders count this as income.
For carer’s allowance, it’s 31 lenders out of 71, and for child tax credits, 44 lenders out of 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 a borrower 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 walk away. not.
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.
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