Re Mortgage for self/un employed on Benefit

steviebilbo

I have a good mate who is unable to work (for medical reasons) and is on benefit and is also currently having his mortgage interest paid by benefit. In an effort to pay of his £57k mortgage he intends to sell his current house and downsize to another property with the equity around £150k. Like everyone, he wants the best deal. If he doesn't realise all his equity and needs a mortgage though, he has been offered £18k mortgage based on his benefit income of £5k per annum. This will be at around 5.45% fixed for 5 years on a 19 year term or 2 year fixed at 5.35% again 19 year term. He does intend to start work but can't at present so this benefit is his only income... What advice can anyone give please.

arkie

Normally a lender won't accept him with his mortgage interest being paid for by the state, they tend to class these kind of payments as arrears. So id get a mortgage offer from the lender before even selling, also wouldnt he be better paying the 130pm (5.45% on 18k over 19y) off his current mortgage and reduce that?

iam a mortgage adviser

steviebilbo

Thanks for that Arkie :T but the main aim is to reduce his current 19 yr/57K mortgage by downsizing and releasing the equity to buy a place which is still suitable yet managed on just an 18K mortgage - his current lender has given the quotes you saw and I was asking on his behalf if anyone on this site might be able to offer an alternative. In his bit to relieve/reduce his burden on 'the State' he is trying/moving in the right direction surely?

cattie

I've heard that Northern Rock will take benefits into account for mortgage purposes.

However, he is probably better staying with his present lender as he will avoid unecessary fee's on such a small mortgage. Also many lenders have a mininum amount they will loan, some won't loan under £25,000, others have a higher threshold.

Fairdo_2

There are lenders who will take benefits into account, but I would put a warning to your friend that the mortgage interest being paid for him is a useful benefit whilst he needs it and if he changes his mortgage, he will not be likely to get the same benefits again. Therefore, although he is trying to do the right thing, I would get him to seriously consider making the most of the benefits whilst they are there.

I would suggest as said before, that he should look to reduce the liability while he can, by saving or overpaying (if allowed) money he doesn't need and look to change his situation when he is back at work.

He needs to bear in mind that with a new transaction, he would be likely to need to pay estate agents, solicitors and stamp duty fees, so is he being too honourable and risking putting himself in trouble later on if his benefits reduce?

I would strongly suggest he either speaks to a trustworthy local Financial Adviser or a local advisory group, such as CAB.

fodderstompf

Fairdo wrote:

There are lenders who will take benefits into account...

Apart from Northern Rock do you know which lenders would?