The benefit of reform 

The recent announcement by prime minister Boris Johnson to allow homebuyers on lower wages to include state benefits in their mortgage affordability calculations has proven unsurprisingly divisive among the mortgage community. 

The measures, which include an extension of the Right to Buy scheme for those living in housing association properties, will provide those working and claiming state benefits with the opportunity to purchase their homes at a discounted price. 

Reactions to the news have been mixed, with criticism levelled at the government for encouraging further debt for those already struggling with the rising cost of living, while further concerns have also been raised about the impact of the move on already depleted social housing stock. 

At Norton Home Loans, we have always taken the view that benefits, with the exception of housing benefit, which would stop for those purchasing a property, should be considered in any assessment for a mortgage.

It forms an integral part of our criteria, as we want to offer those on potentially lower incomes the opportunity to own their own home. 

The fact is that those on lower incomes are grossly underserved by the general lending community, and we hope the government’s new stance will lead to more lenders considering a wider range of borrowers such as those in receipt of state benefits.

Being ill, disabled or unable to work through injury and sickness should not be a barrier to securing a mortgage and the dream of owning a home.

Security in later life is what everyone strives for, so if the new measures provide this opportunity to those on lower incomes, then it should be viewed as a welcome move.   

In many cases, it is saving for a deposit that presents one of the biggest barriers to home ownership for the majority of people, but with the ability to use the right-to-buy discount as a deposit, expanding the scheme to include housing association tenants will open up the chance of getting onto the property ladder for 2.5 million people. 

While the ability to finance a mortgage is always a concern, it is important to note that benefit income for mortgage purposes is subjected to the same affordability measures as employment income, so if the applicant does not pass the affordability checks, then they won’t qualify for a loan. 

Both housing benefit and job seekers allowance are exempt from affordability calculations at Norton Home Loans, as both will stop once the claimant gets a job or buys a house. In situations where other benefits such as universal credit, disability benefits and child benefit are claimed, applicants must provide evidence of all income and the ages of all children must be declared. 

In cases where the children are aged over 14, proof of future affordability to finance the loan will be required. For those receiving child related income for children aged under 14, this can be used for the full length of the term. 

Including state benefit income in the mortgage affordability calculations for lower income earners is by no means a new concept in the mortgage market, and lenders like Norton have been doing this for years. 

It is our view that any move by government or industry to offer mortgage solutions and the opportunity for homeownership to those outside of traditional mainstream lending criteria such as those on lower incomes, should be welcomed. 

And for those in receipt of regular state benefits, including benefit income in affordability calculations could make all the difference to helping them get a foot on the property ladder.

David Binney is commercial manager at Norton Home Loans

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