Mortgage affordability as single parent - which is the best strategy?

[sallyanne33]

Hi all. Sorry for long post but I can't see the wood for the trees right now, hoping for some opinions.

I am single parent looking to buy a home by myself post-split. Currently private renting, expecting c.£130k in equity soon from sale of jointly owned home. I want to buy near the kids’ school but houses around here are not cheap. I’d be looking at £375k (but needs work) to £450k for a 3 bed semi.

I’ve been freelance through my limited company for 10 years (paying myself salary and divis), my last few tax computations show £41k-£45k annual income. I took a contract role recently to boost my income but unfortunately the higher income is not yet reflected in my latest tax return so I will have to wait until next April for the numbers to look better.

I get UC single person’s allowance and child element for 2 kids, and should get maintenance which altogether should come to £17k a year.

From September I will have no childcare costs.

I have a little bit of debt but will be able to clear it before applying for a mortgage. Good credit.

The company I’m contracting for has offered me a permanent job (salary to be negotiated) with the ability to keep freelancing a bit on the side. I could do this job full or part time, full time would mean I have childcare costs though and long days in wraparound care for young kids so not ideal. My mortgage broker advised me not to take a job as it would mean lenders would not take into account my limited company income so affordability would be lower. I’m in a pickle trying to decide what to do for the best.

If I were able to get my income up to borrow £300k (for a £430k house) my repayments might be £1300-£1500 a month over 30 years which feels scary. If I went for a £375k fixer upper and borrowed less I could live with the avocado bathroom and save to do it up over time, this feels financially more prudent but I will struggle if it turns out to be a money pit that needs a lot doing as I don't have savings right now.

Would it be better to take the job if I can negotiate a high enough salary? Will I need 3 months’ payslips? Do any lenders look at employed salary as well as freelance income?

Should I remain a contractor and wait until next April for a tax return which shows a higher income (might be more like £55k)

Should I stop claiming UC, does it look bad in terms of my affordability?

Do I need to show 3-6 months of child maintenance and no childcare costs? (I will go through CMS to claim this). I'd be looking at a 30 year mortgage term - will lenders count all UC and maintenance as income given that will stop when kids are 18 if not sooner?

Is it worth stretching to buy the house that doesn’t need work and I can stay in forever even if mortgage repayments are massive?

Thanks in advance, head is spinning and not sure where to go from here!

I lot of this can be answered by your broker. I went with L&C, who are no fee, and had an in-depth discussion about my finances with him, and my various income (child maintenance, salary, and other benefits). He found a lender who would take these incomes into full account, and allowed us to get a mortgage large enough to buy a house in the area and of the size we wanted.

Your payments won't stay at £1500 for the full 30 years of the term - over time they will reduce, you can overpay by a certain amount if you have the spare cash, and you'll pay it all off in the end. I wouldn't fret about that now.

You're right to consider the implications of buying a doer-upper, though. We've gone for a house that only needs cosmetic treatment vs one that needed the full re-wire and a new roof, because (1) we didn't have the energy to live in a building site and (2) long-term it was going to be much more expensive to fix the house up vs buy one already decent in the inside.

Remember that your time is worth something, your energy, your mental health. Buy what you can afford using all those calculations, not only what the bank says.

Forgive me if you already have thought of this, but £130k equity plus £300k mortgage for a £430k house doesn't account for the £12k or so in stamp duty plus legal and moving fees. Just make sure you're doing all your calculations adding in all the crucial costs.

Lots of lenders do not take maintenance or universal credit/benefits into account so best to check which ones do if you are working the figure out using those combined with your income.

There's a lot in your post to unpick and I don't feel able to comment on all of it. But it does strike me that maybe you are trying to take on too much, too soon. If you are currently renting, is there any reason for the rush to buy a property while other parts of your life are in a state of flux?

The UC - I don't think you should stop claiming that while you are entitled to it, you would be making yourself poorer.

The option to get a permanent contract from the company you are contracting for - is that what you want? If it gives you stability and greater peace of mind re having a steady income then you should explore it further, at least find out how high they are willing to go salary-wise. If you accepted a permanent job you would be able to get a mortgage after 6 months (some lenders 3 months) based on your wage slips, as long as you are not in a probationary period. By that time you would have fewer childcare costs too, so it may be better not to try to do everything at once.

Thankyou, I appreciate all your answers. You're right, I am rushing, just panicking a bit that house prices will get away from me while I'm trying to improve my affordability. Also I will have to decide soon whether to renew my lease for another year. The rental is my starting over house, it's small and basic and I suppose I thought I would only be here for a short time while I get back on my feet. But I think maybe if I renewed for another year that would give me some breathing space to decide my next move, let childcare costs drop off etc.

When the 130k enters your account, you will no longer be entitled to UC, so do bear that in mind whilst you are waiting for figures to improve.

My understanding was that you can get a 6 month grace period where that capital is not counted for UC purposes if it is going to be used to buy another house. I will check this though.

You're correct. If it's from a house sale and is kept solely to buy another property then it will be disregarded. However whilst your doing your sums I'm assuming your current uc award includes a rent element and childcare element, so make sure you use the figures without those when your considering your income post purchase , as of course the rent element would stop. In your circumstances I'd seriously look at shared ownership properties if there are any in your area, you could use your equity to buy part of the property, possibly with a much smaller mortgage, and would be able to claim uc help with the rented part. It could be a much better financial position for you than buying outright with a large mortgage.

I can't see house prices rising dramatically over the next year, they are actually stagnating in most areas or rising only slowly. And if you signed a lease for another year maybe you could have a 6 month break clause to give you flexibility if you felt things were more settled in 6 months or so.

It's a hard decision though I can see that. Wishing you all the best.

Get a decent independent mortgage broker, they will work this all out for you.
I was in a similar (complicated) position as a single parent but my broker got me a fantastic mortgage.
L&C are terrible, they can only cope with very simple cases where you probably don't need a broker.

Just me but my thinking is: do everything you can to maximise your income before April 2025 - either part time at the company or continuing to contract with them. I wouldn’t take on the wraparound costs and it also gives you less to cover during the holidays. Get yourself to April 25 and then use the previous year’s tax return or 3 months of 2025 payslips (whichever works out to be higher) and then go for the best house you can afford at that stage. You’ll be able to show accounts to the mortgage co with no childcare costs or UC, maintenance steady and established and your best possible deposit. Will you have scope to build up the equity from the former marital home once childcare kicks out in September?

I completely get wanting to get out of the rental but I don’t see a huge amount of change on house prices between now and April, given how many people are due to fall off their low interest fixes in the next 12 months.

Thankyou. Would you share which broker you used please?

Yes this is what I'm leaning towards, it seems a sensible plan. I was going to put the equity from the house into a 5% savings account so I can also be earning some interest on it in the meantime. Had forgotten about stamp duty so will need to factor that in, as someone suggested upthread.

@sallyanne33 I can't I'm afraid as he no longer does residential mortgages. But I don't think it's too hard to find a decent mortgage broker, ring a couple of mortgage companies/banks, then a couple mortgage brokers, the brokers should have better access to better deals and give you advice to become a more attractive borrower and therefore get better terms/interest rates.

If they can't beat the mortgages toy can get direct then they aren't very good (or you are a very simple case).
You often don't have to pay a fee to the broker as they will get a fee from the lender, but sometimes paying the fee is worth it because they can get you a much better deal (never pay/agree to pay unless you want to take the product).
They will be keen to sell you life insurance too which isn't necessarily a bad thing, but obviously don't feel pressured to do this unless you want it.

Thanks for everyone who advised me on this thread. I wanted to update you all as I love it when people come back to update their old threads. I did use a mortgage broker and they were able to find me a deal with a mainstream lender which took into account all my sources of income including maintenance, child benefit and UC. I didn't take the job but stayed fully freelance as I had already done the hard work of building my business and had several years of consistent accounts to show, as broker pointed out. I'm now in my new house! I borrowed less than my max affordability and bought a fixer upper, and I do indeed have to live with an avocado bathroom for a while yet but I don't mind. Of course the ancient boiler broke immediately etc so the improvements will come in at double what I budgeted as everything is so expensive. I am taking on some interest-free debt to do it which I'm not too happy about but I have a plan to get it paid off. It has been hard work doing everything it needs but the house will be lovely in the end I think.

Congratulations OP! Enjoy the journey of making the house your own.

That's fabulous! I can't believe you've done all that since May! Congrats on your new home and your business, and the avocado suite (they are worth a fortune now ) !

I love an update! Congratulations on your home. Definitely focus on what your home could look like rather than now and enjoy planning it. Part of our fixer journey has been endless planning and getting inspiration from what people are doing with their projects.

while it might look intimidating at moment the mortgage will reduce over time along with inflation / house price rises over the 30 years eating away at it.
it might be a unpopular view but also factor in any inheritance you may get along the way and you likely won’t be single forever so things alter a lot - I know those last 2 points are not things to bank on but they have to be factored in when weighing up the overall risk and likelyhood.

Hi OP, I’m in an almost identical situation and I wondered which mortgage broker and lender you used? So glad it all worked out for you