Getting a Mortgage with Stipend Income
A stipend (sometimes called a benevolence income) is a payment made on a regular basis by an employer or organisation, to cover basic costs of living whilst working/training, such as food, housing, petrol and phone costs. These can include those studying for a PhD, charity workers and clergy.
When will UK lenders accept stipend income for a mortgage?
If you’re looking for a mortgage and receive a stipend there can be limitations as most lenders do not accept stipend income as a form of reliable income. The lenders who can consider it will want to know:
Who will be applying for the mortgage (some UK stipend mortgage lenders only accept stipends as a secondary income, so require another borrower to have a job. Others will accept regardless of other applicants).
How long you’ve been receiving the stipend for (some require you to have had it paid for at least a few months, others require there to be a minimum period remaining on the payments).
What profession you are in (some will accept all types of stipend work, others only accept clergy, others only accept PhD work).
What your future profession will be (some want evidence there is a job with enhanced income lined up, others happy to assume there might be).
If you’re in a strong financial position generally (those with debts who look likely to be unable to meet mortgage payments may not be approved)
If you have a clear credit history with little or no debt (those with adverse credit may have more limited options, and likely need more deposit).
How to get a mortgage if you have a stipend income.
If your stipend is part of a PhD, most high street lenders will decline the application, generally as the stipend is only payable for a short period of time and it’s not always guaranteed you’ll be offered a full time job to replace the stipend income, at the end of your studies.
Thankfully, there are some lenders happy to consider, whether a full-time employed position is guaranteed or not.
These lenders will look at your future earnings in your profession as a guideline for future affordability, so if they grant you a PhD stipend mortgage in the UK now, they can be confident it’s going to be affordable once your PhD has finished. For this reason, certain types of PhD may be harder to get approved for than others, if for instance, its less likely to turn into a full time position.
Using clergy stipend income for a mortgage application tends to be more acceptable with lenders than someone receiving the stipend while studying a PhD, generally because they are more sustainable and paid for longer periods and qualify for a clergy mortgage interest deduction.
Clergy can use their clergy housing allowance and mortgage interest deduction, as well as property tax as part of their qualifying expenses for housing.
All of which will help when it comes to assessing affordability when applying for a clergy housing allowance mortgage.
Depending on how long you’ve been receiving the stipend for, generally the lender will want to see that you have received it for a minimum of 12 months. There are options available if you’ve received it for a shorter period, the lenders may ask for further details and confirmation from your Diocese.
Calculate what you can borrow if you have stipend income?
Each lender has different affordability calculations, although many use a more complex affordability calculation these days, as a general rule, lenders will cap income based on income multiples, to reach the maximum lending potential. Affordability tends to hinge on whether you are using your stipend for mortgage applications alone, or if there is more than one applicant.
Sole application for a stipend mortgage
If it’s a sole application then most enders will decline the application altogether on this basis, as they consider the stipend not reliable enough an income.
That said, some are happy to consider stipend income as a single income and will consider lending up to multiples of 4x the stipend income
Joint mortgage application for a stipend mortgage
If you’re applying jointly (i.e. with a partner, friend or family member), then this can potentially help the chances of borrowing using a stipend with a lot of lenders because, as mentioned, some will only accept stipend income if there is another applicant on the mortgage with a different type of income.
This is especially attractive in the case of a graduate student stipend mortgage, where a number of students can pool their resources.
Deposit needed for a stipend mortgage
In terms of what deposit you’ll need, this depends on many factors such as age, the term affordable, and of course credit history. Those with a riskier profile or lower credit score would often be required to put more deposit than others, but it is possible with a minimum of 5% deposit.
This can be from savings, gifted from family or friends, or if the organisation paying the stipend is generous enough to gift deposit, this may also be acceptable with some lenders.
Stipend mortgages with bad credit
If you’ve had bad credit, your access to the market will be limited based on the following:
The type of credit issue you’ve had (late payments are less severe than defaults, then CCJs, debt management plans, mortgage arrears, IVAs, Bankruptcy, Repossession respectively)
The date of the issue (more recent issues are more severe than older issues)
If the issue is settled or not (with most issues, you’re more likely to be approved if settled)
The more recent and severe the issue, the more deposit you’ll need, and you can usually expect to pay a bit more in interest.
If you are limited to a few lenders based on your adverse credit, adding in the restrictions due to having stipend income, the total number of lenders that would consider your application is even more limited, but it’s by no means impossible.
Buy to let mortgages and stipend income
Deposit for a stipend buy to let
Deposit can be a factor here, for a buy to let property for a first investment deposit levels could be around 25%, although some lenders can offer buy to lets with as little as 15% deposit, depending on your circumstances.
Minimum income thresholds
Some mortgage lenders may require those purchasing a buy to let to have a minimum income, (often between 15-25,000) in the hope that this will cover any periods of rental voids.
Buy to let affordability
The buy to let lenders also apply different ‘stress tests’ on the rental income the properties make to check the loan is affordable and sustainable should rates rise / the tenants not pay the rent.
This is typically assessing what rent you expect to / will receive as an income vs the monthly mortgage payment, and needs to exceed the payment by a certain amount, usually 125% – 145% (depending on tax threshold).
First time buyer buy to lets for stipends
Most mortgage lenders offering buy to let’s also want borrowers to own their residential property, so a first time buyer who’s first property is a buy to let, is likely to be subject to standard income criteria, and as such would need to be able to prove they can afford the mortgage on their stipend income, as well as the rental income stacking up in the normal way.