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Mortgage Advisor & Director
Pensions serve as a stable source of income to see you through your retirement years, but is it possible to get a mortgage on the capital they provide?
Here, you will learn whether you can get a mortgage based on pension income, the hurdles you might face, and how we can help you overcome them.
Can you get a mortgage on pension income?
Yes, absolutely. Pension income is actually considered stable and secure by mortgage lenders, so you should have options to choose from in this scenario.
Although this income type is widely accepted by mortgage lenders, borrowers who are planning to use their pension to get a mortgage tend to face challenges, such as:
- Age limits: Some lenders won’t offer you a mortgage if you will be aged 75 during the term, which may affect borrowers of pensionable age.
- Affordability: As your pension income is unlikely to be as much as your earned income while you were working, you may be limited with the amount you can borrow.
- Frequency of pay: Most lenders prefer monthly income, so if you have a pension type that pays out less frequently, such as an annuity, options may be limited.
While those seeking a mortgage based on pension income might have hurdles to overcome, our brokers can help you explore solutions to these problems and more.
Types of pension income you can declare
Mortgage lenders will accept income from the following types of pensions:
- Workplace pensions
- State pension
- Private pensions
- Self-invested personal pensions (SIPPs)
- Stakeholder pensions
- Widows pensions
- Armed Forces pensions
- Disability pension (benefits)
Bear in mind that most lenders will not approve your for a mortgage if 100% of your income is a state pension, but it can be used in conjunction with other income sources.
How you take your pension can also have a bearing on your mortgage options. For example, if you have opted for pension drawdown, you can potentially use your 25% lump sum as a repayment vehicle for an interest-only mortgage, assuming it covers the debt.
Monthly pension income that you are drawing down from a defined benefit or defined contribution scheme is perfectly acceptable in the eyes of most mortgage lenders but, as we’ve already touched on, annuity income can be more complex if it pays out less frequently.
How much could you borrow?
Most mortgage lenders will allow you to declare 100% of your pension income you have and some will let you combine this with other legal earnings that you can evidence.
To work out your maximum borrowing, most lenders will multiply your total declarable income by 4.5, though some will use higher income multiples, stretching to 5-6 times salary.
Enter your annual pension income into our mortgage affordability calculator below to get a rough idea of how much you can borrow:
How to get a mortgage on pension income
The ideal first step is to speak to a broker who specialises in mortgages based on pension income. There are advisers on our team who have the knowledge and expertise you need to get the best deal, and they can walk you through the steps to full application:
1. Evidencing your pension income
You will need an annual pension statement, reward letter and a P60 to evidence your pension income to your lender. Your broker will help you ensure you have all the right documents for your application and make sure all of the paperwork is submitted correctly.
2. Exploring your options
A broker can help you explore solutions to the common issues mortgage applicants face when pension income is their main source of. For example:
- Overcoming age restrictions: The right broker can introduce you to a lender with flexible age limits, who may offer mortgages to those up to 85 and older.
- Maximising affordability: If your pension income doesn’t stretch far enough, solutions your broker will explore with you include declaring other income on top of your pension, applying with another person or finding a mortgage lender who is willing to offer you finance based on a higher income multiple.
- Alternatives to consider: As someone of pensionable age, you may qualify for mortgage alternatives specially geared towards later-life borrowers, such as lifetime mortgages and RIO mortgages - a broker can review each option with you.
3. Applying for a mortgage
After reviewing every possible option with you and preparing your case your broker will oversee your mortgage application. They will ensure that you are matched with a lender who specialises in pension income, and who is best placed to offer you a favourable deal.
You can book in a free, no-obligation consultation with a broker below to get started:
Find a better mortgage deal on Teito
Which mortgage lenders accept pension income?
Pretty much all mortgage lenders will accept pension income towards an application, but some have a specific policy towards it. You will find examples below:
- Santander: Accepts pension income with no caveats if it is paid monthly. Any less frequently and they can only accept it as a secondary income.
- Aldermore: Will offer mortgages based on private pensions but will not approve applicants who would rely on the state pension as their sole income source.
- The Mortgage Lender: Accepts 100% pension income provided the applicant is retired at the time of the application.
- Barclays: Will approve applicants with pension as their main income with no caveats, provided they have documentary evidence of their pension income.
- The Nottingham: Will cap the loan-to-value (LTV) ratio at 70% (30% deposit needed) if pension income is the applicant’s only source of earnings.
There are many more lenders than the above who accept pension income - speak to a mortgage broker for a complete rundown of your options.
Can you use a pension for a mortgage deposit?
Yes. If you are of pensionable age and meet the criteria to withdraw your tax-free lump sum from your pension, mortgage lenders will accept these funds as a mortgage deposit.
To provide proof of deposit to the lender, you will need to obtain a pension statement confirming how much the lump sum was and from what date you were able to take it.
If a pension lump sum is just one of your options to fund your mortgage deposit, it’s a good idea to speak to a broker to find the most cost-effective solution.
Why choose Teito for your mortgage needs?
We have brokers available who specialise in helping people get a mortgage based on pension income. Here, you can compare the latest mortgage rates for free and speak to an adviser with a track record helping borrowers just like you onto the property ladder.
Here are just some of the reasons people choose us for their mortgage needs:
- You can access the latest mortgage rates in seconds
- We have mortgage brokers who specialise in pension income to help
- We are 5-star rated on leading review websites
- You can secure an agreement in principle in minutes
Ready to compare the latest mortgage rates and take advantage of a free, no-obligation chat with a broker who specialises in pension income. Get started here.
FAQs
Yes. Thiscould be an option for you if you are eligible to access a lump sum from your pension and the funds are enough to settle your existing mortgage debt.
However, this should never be done lightly. Taking professional advice before using your pension lump sum for this purpose is essential, as there are potential pitfalls and alternatives to consider. For example, paying off such a sizeable chunk of your mortgage in one go could see you hit with early repayment changes as most lenders place a cap on overpayments.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.