Stipend Mortgages

Can I still get a mortgage on a stipend if I’m a First Time Buyer?

Absolutely, and in fact, it’s usually First Time Buyers who need to. If you think about someone’s working life, they’ve typically completed their degree and they’re going on to do a PhD, receiving a stipend.

Usually they’ve been renting or in student accommodation, and they’re now at the point where they want to be able to buy their first home.

Sometimes clergy could be on a stipend and they may be later on in life. It might not be their first property purchase, in that case, but typically it is First Time Buyers who are looking for stipend mortgages.

Can I use stipend income with income from a job?

Yes, absolutely. There are lenders who will consider stipend income alone if that’s sufficient to cover the borrowing and it meets affordability requirements.

But a PhD Student might have income from teaching or invigilating exams. That could be a normal taxable income, and they’ll also have their stipend for their PhD on top of that. Lenders will take all of that into account.

What documents do I need to provide when using stipend income to apply for a mortgage?

It’s very similar to normal employed income. We would need three months’ pay slips – although pay slips for a stipend look a little different. There’s no tax on them. That’s really what identifies that a payment is a stipend, because it’s not taxable income.

Lenders also want to see the basis on which that stipend is paid. Typically there’ll be letters and contracts to confirm how long that person is funded to do their PhD. Also, importantly, that paperwork will confirm that the stipend payment is to cover ‘maintenance’ – which means that person’s living costs.

Lenders want to see that. It’s not intended to be used for tuition fees or study costs. Indeed, I’ve arranged mortgages for people who have been funded by a research body or a pharmaceutical company for their PhD study costs.

Or, they might have a separate payment from that organisation and a separate stipend for maintenance. So it’s really just about having an understanding of how that payment is structured, how long have they been in receipt of it and how much longer it will continue.

How much can I borrow and what deposit do I need for a mortgage on a stipend?

It’s really the same as for anybody else. Stipend income is treated the same as a salary by the lenders that accept it. It’s down to the normal affordability calculations and the deposit.

As always, the bigger percentage deposit, the better. Typically the minimum deposit is going to be 10% of the purchase price. Stipend mortgages aren’t typically available with less than a 10% deposit.

Does having a student loan affect how much I can borrow? What if I have student debt or bad credit?

This is the same for standard salaried people or self-employed people – a student loan isn’t an issue with lenders. It’s the monthly payment for that loan that’s important.

Typically, someone on a stipend may not be actually receiving enough income to be paying their student loan back yet. They’ll have that student loan in the background and they will start to pay it back once their taxed income is above a certain level. So it may not come into the equation at all for affordability.

If someone is making payments on a student loan, that monthly payment is built into affordability. I speak to a lot of First Time Buyers who are concerned that the size of their student loan will affect what they could borrow. But lenders know you’re only going to pay it back in proportion to what you’re earning.

With bad credit, again it’s the same as for any other applicant. It depends how bad the credit situation is and the lender’s attitude. If you’ve had one missed payment in the past 12 months, there are lenders who won’t even talk to you, while others will consider lending.

We just need an understanding of the circumstances and what caused that problem. We could speak to lenders to find out whether that is going to be an issue.

Can I get a joint mortgage with stipend income?

Yes, absolutely and that’s actually quite common. I’ve done one recently where one applicant was employed full time and the other was doing a PhD and had a stipend income.

They’d been to their bank, but it couldn’t use that stipend income. They came to me and I confirmed that we could find a lender to take that into account. They were able to confirm all the documentation we described previously and they bought their first home on that basis.

Can I get a Buy to Let mortgage with stipend income?

Typically, Buy to Let mortgages are assessed on the rental income. Lenders want to see that that rental income is going to cover the monthly mortgage payment by a certain percentage.

Often, they will also want to see that the applicant has a minimum amount of earned income in the background. They typically won’t include stipend income in that figure because they want to see that you’re working in a ‘normal’ occupation with a taxed income.

So while it might be more difficult to get a Buy to Let mortgage on a stipend, it could still be available to you – with a smaller choice of lenders, perhaps, but certainly possible.

Can you remortgage on a stipend?

Yes. The criteria is going to be the same as if you’re purchasing a property. It will be assessed on the same basis and also how long you’ve been on the stipend and how long you expect it to continue for.

Commonly, people will have a stipend for maybe three years. They might want to get their first property on a two year fixed rate. Then, of course, they’re going to need to look at reviewing that mortgage while they’re still on the stipend – and that’s absolutely possible.

Do you get taxed on a stipend? Is a stipend tax free in the UK?

The definition of a stipend is that it is not a taxed income. It’s not treated as income by HMRC. I can’t give tax advice, but it’s a very clear distinction for lenders.

Some lenders won’t lend on a stipend income. They can’t take an income into account if it’s not taxed.

Can non-British citizens qualify for a mortgage in the UK while doing a PhD?

Yes, and the usual residency requirements would apply for the lender. Typically there’ll be some extra hurdles to get over, but nothing too onerous for most people in this situation.

One of the major requirements is a minimum 25% deposit and lenders would want to see that the applicant has been in the UK for a minimum period. The shortest would be 12 months.

Then it would be subject to whether the applicant has been able to amass a decent credit score and credit history. It also depends whether they’ve got the right to work and live in the UK. Ultimately, they’ll be on a study visa and it’s certainly possible. It will be down to individual consideration by the lender. I’ve certainly been able to arrange mortgages for people in that circumstance.

How long do you need to have been receiving stipend to apply for a mortgage?

There’s no hard and fast rule here. It may be that someone has just started their PhD course and they’d like to get the mortgage on the basis of that, which is perfectly acceptable. Typically, someone will have been accepted for their PhD and stipend quite some time prior to starting it.

Typically people will apply and go through a rigorous selection process up to 12 months before it actually starts. I’ve had many conversations with people at that point who want to know if they will be able to use this income to get a property.

We would speak to a lender in advance and get a Decision in Principle, potentially. It’s certainly possible quite early on. What can be more relevant is how much time is left on the stipend. The lender will need to be comfortable that it’s going to be a sustainable source of income for the applicant.

Can I apply on my own for a mortgage using stipend income?

Yes, although it’s all down to affordability. As long as the income meets the lender’s affordability requirements and the stress testing that the lender will do, then absolutely.

What are the pros and cons of using stipend income for a mortgage?

I don’t think there’s any real downside to doing it. It’s all about whether it’s the right time to buy for that individual, based on their circumstances and where they are in their life. If someone is on a stipend, their partner is earning and it’s the right time for them to buy somewhere.

I’ve had conversations with people who aren’t sure whether to go for it now or wait a little while. They might be expecting to start work soon, where their income will go up and that might then give them the facility to borrow more and buy a bigger property.

It’s a question of where that person is in their circumstances and whether it’s the right time to buy. A lot of people think that they can’t use a stipend income so they can’t buy somewhere. But as we’ve seen from the criteria, it’s possible to do it. We’re always happy to have a chat to see what is possible.

Are there any alternatives if I can’t secure a mortgage with stipend income?

For some people with stipend income, the affordability just doesn’t work. The income isn’t enough, but perhaps a family member might be able to come on the mortgage to help. A parent or relative could help boost affordability on a what’s called a Joint Borrower Sole Proprietor mortgage, without owning the property.

There are various lenders that will consider that. There’s certainly more than one way of looking at it and a good mortgage broker will always assess the client in front of them and have a conversation about their plans and circumstances. That will help us suggest which route to take and the right options for you.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

The information contained within was correct at the time of publication but is subject to change. Podcast recorded on 21/06/2024.