How Can I Get a Bigger Mortgage on a Low Income in the UK?

Getting approved for a mortgage can be challenging when you’re on a low income. With property prices high across the UK many aspiring homeowners worry that their salary isn’t enough to get a mortgage for their dream home.

The good news is that there are ways to increase your borrowing power even if you don’t have a high income. Here are some tips on how to get a bigger mortgage on a low income in the UK.

Boost Your Deposit

One of the biggest factors lenders consider is the size of your deposit The more you can put down as a deposit, the lower the risk for the lender

Aim to save at least a 10-15% deposit if possible. This will give you access to better mortgage rates and potentially allow you to borrow more compared to putting down just 5%.

Some options for boosting your deposit:

• Ask family for a gifted deposit. Family can gift you money towards your deposit as long as it’s documented properly.

• Participate in a shared ownership scheme. This allows you to buy a portion of a property (25-75%) and pay rent on the rest. The smaller share you own, the smaller deposit needed.

• Take advantage of government schemes like Help to Buy equity loans which provide an interest-free loan to boost your deposit.

• Sell assets like cars, jewelry, collectibles to generate extra cash.

• Save aggressively and cut back on non-essential spending. Even small amounts add up over time.

Add a Joint Borrower

Applying with a joint borrower allows you to combine both incomes. This immediately boosts your overall affordability in the eyes of a lender.

A spouse or partner is usually the best option. But parents, siblings, or close friends can also jointly apply. Their income gets taken into account alongside yours.

The joint borrower doesn’t have to contribute to the deposit. But they must be named on the mortgage and deeds. Their credit will be checked too.

Use a Guarantor

If you don’t have anyone to jointly apply with, another option is using a guarantor mortgage. This involves having a guarantor (usually parents or close relatives) agree to guarantee your mortgage repayments.

Their income isn’t necessarily used to determine affordability. But their guarantee provides you with extra security. This gives the lender confidence to potentially lend you more than they otherwise would.

The guarantor must own their own home and have good credit. Their property is put up as security against the guarantee.

Choose an Appropriate Term Length

Extending your mortgage term up to 35 or even 40 years means lower monthly repayments. This improves affordability and allows you to borrow more overall.

Of course, you’ll pay more interest over the lifetime of the mortgage this way. But it is an option if your priority is maximizing what you can borrow.

Lenders have different policies on maximum term lengths. So speak to a broker who can find the most suitable lender and term for your situation.

Consider Interest-Only Mortgages

With an interest-only mortgage, your payments only cover the interest portion and not the principal loan amount. This results in lower monthly payments freeing up more income for other uses.

Interest-only mortgages used to be common but tighter regulations mean only certain lenders offer them today. They involve more risk since the loan balance doesn’t get paid down.

So you’ll need a solid repayment plan in place to pay off the full loan at the end of the term. These are best suited for borrowers with high disposable incomes.

Increase Your Income

Look at ways to legitimately increase your overall income. Even an extra £500-1000 per month could bump up your maximum loan amount.

• Ask for a pay rise or promotion at work
• Take on a side hustle or part-time job
• Monetize a hobby or skill (tutoring, photography, web design etc)
• Rent out a parking spot, storage space, or spare room
• Sell unwanted possessions for extra cash
• Lower your tax rate by contributing more to your pension

Providing proof of consistent higher income from multiple sources can really help your mortgage application.

Use a Specialist Broker

An experienced specialist broker is invaluable when trying to maximize your borrowing potential on a low income. They have access to lenders and products that typical high street banks don’t.

Brokers can search the entire market for the lender most likely to approve your application and provide the loan amount you need. They’ll advise you on the best ways to structure your application for success.

Many also have relationships with underwriters at niche lenders who they can speak with to potentially get you approved when others said no. Their expertise and connections can make a huge difference.

Explore Alternatives Like Shared Ownership

If your income means purchasing a home outright is out of reach, shared ownership presents an alternative route onto the property ladder.

With shared ownership, you purchase just a portion of a property (between 25-75%) and pay subsidized rent to a housing association on the remainder. The smaller the share you own, the lower deposit and mortgage needed.

As your income grows, you can slowly increase your share until you own 100% of the property. Shared ownership is more accessible if your borrowing capacity won’t stretch to buying a home outright just yet.

Be Realistic About Your Budget

Ultimately, lenders will only approve what is affordable based on your income, outgoings, credit, and other circumstances. Be realistic about setting a budget that doesn’t overstretch your finances.

On a low income, you may need to compromise on location, property type, size or condition to find something affordable. Setting a maximum budget from the start is important.

Don’t get carried away trying to borrow the maximum amount possible. Make sure your mortgage, bills, living costs and other financial obligations can all be comfortably met.

Summary

Increasing your borrowing power when you’re on a low income can be challenging, but certainly not impossible. Careful planning, increasing your deposit, using a guarantor, having a joint borrower, extending the mortgage term, and working with a broker can all open up additional options.

While being realistic about budgets is key, with the right approach, you can get a bigger mortgage approved than you may think when armed with the tips above. Do your homework and you’ll be in a great position to turn your homeownership dreams into reality.