What to do if you can’t afford to get a mortgage

• 8 things to consider if you can’t afford to get a mortgage
• What should you do if you can’t pay your current mortgage?
• What can you do if your credit score has suffered as a result of your inability to pay your mortgage?

Don’t check with just one lender and assume that the rest will do the same. Every lender calculates affordability differently, so make sure you look throughout the market or at least a reasonable range of lenders.

However, you shouldn’t go around applying to every lender as this will do more harm than good. Every time you apply for a mortgage, a lender will run a hard check on your credit file. Multiple hard checks can have a very negative impact on your credit score, in turn affecting your chances of mortgage success.

Consider lowering your loan-to-value ratio if possible. The larger the income multiple a lender is willing to grant, the lower your loan-to-value (LTV).

For example, a lender may provide 4.5 times your salary at 80% LTV, meaning you need to put down 20% of the property’s value as a deposit. However, boosting this to 5 times at 75% or less, could increase your chances of success.

You might lower your borrowing by either utilising additional savings when available, or if you currently have a mortgage, you could obtain further cash through a remortgage.

Increase the mortgage term. This is not something we normally advocate because the longer the term, the more interest you may have to pay.

However, an increase may be justified in specific instances. A longer term on a repayment mortgage will result in a lower monthly payment, which may be viewed as more reasonable by a lender.

Remember, according to the scheme’s terms and conditions, you can always overpay on your mortgage once it has begun, or lower the term later if your income allows.

Choose a long-term fixed rate. Some lenders may be ready to lend you more money if they know your payments would not rise over a longer period of time, such as 5 years.

The idea is that by the end of the fixed rate period, your income position will have improved enough to assist in off-setting any rate increases that may occur.

On top of this, fixed rate products can allow you to budget as you know your monthly mortgage payments will not fluctuate throughout the agreed term.

Seek help from a family member or friend. Increasing the income and/or deposit available to a lender to determine affordability will increase your chances of success.

The following mortgage types may be worth considering, if you are thinking about applying with a partner, friend or family member:

• A guarantor mortgage
• A co-op mortgage (up to four applicants are generally allowed)
• Joint Borrower Sole Proprietor

Consider using a government-backed scheme or another affordable housing programme. Every scheme will work slightly differently, with certain schemes being more suited to certain people.

If you’re unsure about what scheme would work best for you, feel free to get in touch. One of our experts will be able to discuss your circumstances and needs over a free initial consultation.

Currently, there are several different mortgage schemes available:

• Shared Ownership
• Mortgage Guarantee
• Deposit Unlock
• Right to Buy

Ascertain that the lender is aware of all your income sources. While you may not consider some sources of income while making your own evaluation, informing the lender will help them make an informed judgement based on all the facts.

Some lenders will accept the following forms of income:

• Overtime
• Bonuses
• Commission
• Maintenance
• Benefits
• Third jobs
• Rental earnings

What a lender is unaware of cannot be included in their calculations, and they cannot make any assumptions. For example, they cannot assume you are receiving child benefits just because you have children.

If you are ever unsure about what a lender does or doesn’t accept as proof of income, just ask. Then you can be sure that you are proving the maximum amount of income as possible.

Seek professional assistance. Affordability can be seen as a confusing area in the mortgage sector, and while the concepts are largely the same across all lenders (e.g. can you afford to repay what you are borrowing?), how they assess this varies. If you are using a calculator on a lender’s website, please be aware that you will not always be given an accurate result.

We recommend seeking the help of a mortgage broker. They will be able to guide you through the application process and provide an estimate of your affordability before running a credit check. A mortgage broker is in an excellent position to know which lenders are better in particular conditions and which are more likely to accept alternative types of income, such as benefits.

They will also have access to extensive affordability calculators to guarantee that what is provided at the beginning is what a lender should agree on after a thorough examination. One word of caution – ensure you provide an accurate picture of your finances when the broker performs their calculations. For example, make sure any credit obligations, even little ones, are mentioned.

Ascertain that your lender is aware of your circumstance. They may be able to give interim remedies to assist you getting through this tough period if you keep them informed. It’s in their best interests, as much as yours, to get you back on track.

Payment holidays, if offered by your lender, should be utilised for unique life events rather than to solve financial problems. However, if you’re planning an event such as a birth or a sabbatical, where your finances may be temporarily decreased, a payment holiday may be beneficial.

Speak with a non-profit organisation or charity, such as Citizens Advice. These will provide you with a wide, unbiased picture of your possibilities, not just for your mortgage.

Support for Mortgage Interest (SMI) is a benefit offered to people who qualify to assist with mortgage interest payments.

You must own your home or have bought your home through the Shared Ownership scheme. On top of this, you will need to be receiving one of the following benefits:

• Income Support
• Income-based Jobseeker’s Allowance (JSA)
• Income-related Employment and Support Allowance (ESA)
• Universal Credit
• Pension Credit

If you’re currently in a situation where you can’t afford your mortgage, to reduce the chances of it happening again it may be worth finding out what solutions are available to help you in those positions.

However, to reduce the chances of it happening again, it may be worth finding out what solutions are available to help you in those positions. Investigate prospective insurance products for occurrences such as redundancy or sickness, where you may safeguard your cash.

Policies such as the ones listed below are common:

• Income protection: this cover provides a guaranteed income in the case of lay-off or long-term sickness.
• Life assurance: A type of insurance policy that provides a guaranteed lump sum payment, providing that payments have been met, in the event of the policyholder’s death or diagnosis of a terminal disease.
• Critical illness cover: Unlike terminal sickness coverage, critical illness pays a lump amount if you are diagnosed with a critical illness such as cancer or Parkinson’s disease. Insurers normally cover a wide range of ailments, but this is not infinite and can vary from one insurer to the next, so make sure you understand how your policy protects you.