Mortgage on PhD stipend as of 2016

big5824 · 23 July 2016 at 9:26AM

I'm posting to share my experience of trying to obtain a mortgage on a PhD stipend in 2016, and hopefully hear the experiences of others. I realise this topic has been touched upon before, but I haven't seen many 2015/2016 posts or people in exactly the same situation as me.

I started my PhD in September 2015 with a 3.5 year tax-free stipend of £21000 PA. Using the MSE income tax calculator, once you take into account the student perks of not paying income tax, NI, student loan repayments, council tax, or pension contributions (5%), this equates to the same take home pay as someone earning around £32000, with over 2.5 years left on my contract.

I was therefore hopeful I could borrow 3.75x the guaranteed income figure of £32000 for a mortgage of £120K, with a 33% deposit. Unfortunately, after trying every high street bank, only two have offered to lend to me, Halifax/Lloyds and the Coop bank, for £100K and £98K respectively, not quite enough for me to buy a house in my area.

Does anybody know of any other lenders I haven't come across who I might have more success with?
Would a mortgage broker have more success with the mainstream banks than I, or would they just meet the same lending criteria that have stopped me?

I also realise most posts regarding stipends discuss the standard ~£13000 stipend, has anybody else out there had success with a larger stipend?

big5824 · 25 July 2016 at 11:12AM

A further update:

I've since tried going through a mortgage broker in order to access intermediary only lenders and have had offers from West Brom and TSB, but none for more than the 100K Halifax offered. They don't think I'll be able to find anybody who will lend more.

ACG · 25 July 2016 at 11:34AM

You are looking at it in entirely the wrong way.
As a director of a limited company, I earn the normal £11k tax free. I can take the rest of my income as dividends which then means I pay less tax than someone who is employed.

So (ballpark figures not including NI), if I earn £20k I would take £11k as wages and £9k as dividends.
That means I pay:
PAYE £11,000 = £0 tax
Dividends £5,000 = £0 tax
Dividends £4,000 = £800 tax (20%).
So of my £20,000 income, I walk away with £19,200.

The same person employed on PAYE earns £20,000 would pay £1,800 in tax meaning they walk away with £18,200.

However, we could both lend the same figure based on the £20,000 gross as thats the figure lenders work from.

You are not going to pay 0% tax for the next 20-30 years and so it would be irresponsible of a lender to assume you will. Especially when your income has a definitive end date.

ThePants999 · 25 July 2016 at 12:44PM

big5824 wrote: »

once you take into account the student perks of not paying income tax, NI

In case Google indexes this thread and starts misleading people, just a quick note for the unwary reader: this is specific to a PhD stipend, and there is no general student exemption from income tax/NI.

Noctu · 25 July 2016 at 12:46PM

When we were in the same position a few years ago Natwest would also offer based on a PhD stipend. No idea if they still do, but worth checking out.

Voyager2002 · 25 July 2016 at 12:51PM

ThePants999 wrote: »

In case Google indexes this thread and starts misleading people, just a quick note for the unwary reader: this is specific to a PhD stipend, and there is no general student exemption from income tax/NI.

It is not specific to a PhD: any funds provided as a student grant or scholarship are exempt from income tax, subject to various limits and conditions. However, a student with a part-time job (including a PhD student) is subject to tax on those earnings.

big5824 · 8 August 2016 at 1:02PM

A further update:

I approached Halifax to make a full mortgage application, only to find the mortgage advisor had misread their lending criteria regarding stipends, dropping my maximum loan from 100K to 34K. Annoyingly, I'd seen and pointed out this mistake multiple times previously, but the mortgage advisor assured me I was wrong and I didn't understand the system. The !!!! didn't even apologise!

I've now managed to get a 100K agreement in principle over the phone from Natwest by pointing them to the part of their lending criteria that says exceptions can be made regarding stipends, despite being told in branch they couldn't lend to me.

Hopefully this attempt comes to more success than Halifax!

Noctu · 8 August 2016 at 1:08PM

Good luck! Let us know how you get on.

nkkingston · 8 August 2016 at 4:42PM

Your stipend is much more generous than my other half's! We went via a mortgage broker, who said there's only a dozen or so lenders who'll considering PhD stipends at all, and most of them won't consider 100% of it. We went with Halifax in the end, who looked at our joint income. I don't know what they'd have leant on his alone, though.

Helen_S247 · 20 August 2016 at 9:53PM

Hello,

Thank-you for starting this thread. My husband and I are just starting to look at mortgages and what we can borrow. My husband is going a PHD and receives a stipend of 14k p/a which he'll receive until October 2018. We saw a mortgage broker on Thursday who said Natwest were our best option because they seem to be more flexible with who they give mortgages to (e.g. people on zero hour contracts). The only other lender he mentioned was Halifax but was abit hesitant. I got the impression that some lenders' rules on stipends are abit hazy so there isn't necessarily a yes or no answer! I will check out some of the other lenders you have all mentioned in previous posts.

CBeardsworth · 26 August 2016 at 2:53PM

Hi,
I went to Halifax yesterday and got a mortgage promise. They just needed a letter from the university stating how much I get on my stipend per year (~14k) and when that ends. I applied with my partner which made the offer significantly more than on my own as they only take into account 60% of my income. We are going to have a look into Natwest too to give us some choice in rates but I'm really pleased we have been accepted by at least one!

Mortgage on PhD stipend as of 2016

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