Could we get a mortgage on a really low income and tax credits?

[elliejjtiny]

I've just inherited some money (don't know how much yet) and I was wondering if it's a big enough amount if I could use it for a deposit on a small flat or house and rent it out? Dh thinks we wouldn't be able to get a mortgage though as our income is really low and the majority of the money comes from tax credits. Is that right?

I would be more concerned about losing the tax credits due to owning another property

I don’t know the rules about owning another property but you can definitely get a mortgage - we were in a similar situation and got one with Nationwide. Circumstances may be different now though. Worth asking.

If it's over the threshold for claiming benefits they will stop.

It would be a buy to let mortgage which is a very different thing than your run of the mill mortgage. As long as the rental income and the house value to mortgage ratio are ok you should be fine

Will it tip you over the threshold for claiming benefits?

Thankyou. I didn't think about the losing tax credit thing. We don't own the house we live in it that makes any difference. Unfortunately unless my grandad was a secret trillionaire we would be buying a house/flat that would be much too small for us to live in. I thought that as the rent would probably only pay for the mortgage and any repairs/maintenance etc then we wouldn't lose much of our tax credits.

https://www.moneyhelper.org.uk/en/benefits/problems-with-benefits/how-do-savings-and-lump-sum-pay-outs-affect-benefits

You will lose (most likely) the benefits by being recipients of a lump sum. I heard you could ask not to close the claim, just not receive anything and then if you’re entitled again, you can restart claiming. I read it on here though, so not sure about accurancy!

accuracy!

If you don’t already own a property getting a BTL mortgage will be incredibly difficult, if not impossible in the current market.

Depends on the bank. Try Barclays as they took my TC and maintenance into consideration and were recommended to me by an IFA

Tax Credits are different from UC. For Tax Credits, savings and assets don't count, only the income earned from them, e.g. interest, rental income, dividends.

You'd have to ask the bank / building society, OP. They tend not to like benefit income though.

A BTL, in your circumstances may be very hard to get.

Also, you need to work out what the property would really cost (mortgage/repairs & upkeep, insurance, agency fees if you are not managing it yourself), the cost in loss of any benefits (tax credit or UC & if you receive housing benefit that would stop if you own a property I believe) you receive and any tax liabilities.

Is moving to a cheaper area an option? That way you would be able to use the lump sum for a deposit for a property for yourself, which will be better in the long run.

Doesn't seem right that you would be investing and building your asset while having your living costs covered by the tax payer.

You cannot possibly afford the potential costs of renting a property on benefits even if your entitlement was not impacted. How would you cover a new boiler, leaky bath, replacement carpets, legal fees to evict a tenant, I could go on.

Don’t do it. Use any money you can to furnish a pension pot if you can. That should be your priority. But you may lose some benefits in the short/medium term

If used to buy your own property then this would not impact your entitlement to benefits, but moving house may trigger a move to UC

You need to really think about the costs associated with a BTL. Tax, maintenance, mortgage payments, interest, agency fees, obtaining and renewing EICR and gas safe certs. You will need savings for rent voids and emergency repairs. Some lenders do require a minimum income as well. Have you already got a residential mortgage?

Some banks do count benefit money as income.

I thought that as the rent would probably only pay for the mortgage and any repairs/maintenance etc then we wouldn't lose much of our tax credits.

It doesn't matter what it covers. It's income. You don't get to have a rental income and have it not count because of your outgoings.

Residential mortgage, maybe. BTL as a non homeowner in receipt of benefits is not going to happen.

You may be able to buy a shared ownership property to live in OP. Some shared ownership providers don't require you to get a mortgage, ie just buy the share you can afford and pay affordable rent on the rest.

You won't loose your tax credits for inheriting a tax free lump sum, any interest over £300 will need to be declared as income.
You will need 25% deposit for a btl, and could get a self certifying mortgage as it will be caulated on rental income vs mortgage repayments.
Any profit on the btl would be in the same pot as the £300 threshold interest payments. If you pay any surplus into a private pension the gross sum can be deducted from the income you declare to tax credits.
You are unlikely to make a profit on a single btl for a couple of years, and any loss can be carried forward when declaring income for tax credits. You can use 100% of mortgage investment costs as well.
This is kinda my specialist subject! It's getting harder and harder for btl to give reasonable return on an investment, I'd speak to an IFA and they can help decide if there might be a comparable return without the stress and hard work .

You will lose tax credits for savings over £6k if I remember rightly.

I’d think about shared ownership OP. Buy to let can be quite stressful and the unexpected costs can mount up.

@dalrympy

You will lose tax credits for savings over £6k if I remember rightly.

Nope.