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Getting a mortgage with stipend income

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 21st February 2020 *

Many borrowers who receive a stipend can face difficulties when looking for a mortgage with a stipend as the mortgage lenders may not consider the income for a number of different reasons.

But there are a few lenders who would consider an application based on a stipend … and the good news is that the advisors we work with know who they are.

This article covers all you need to know about qualifying for a mortgage with stipend income:

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What is 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).

Getting a mortgage on a PhD stipend

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.

Mortgages for clergy using stipend income

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

Example if the stipend is the only income on the mortgage application @ £25,000

  Income multiple Max loan
Most lenders 0 £0
Stipend lenders 0 £0
Stipend lenders as only income 4x 25k £100,000

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.

Example if the stipend income is £25,000 and the other applicant earns £30,000 from another acceptable source

  Income multiple Max loan
Most lenders 4x 30k £120,000
Stipend lenders 4x 55k £220,000
Most generous Stipend lenders 5x 55k £275,000

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.

Make an enquiry and one of the bad credit mortgage specialists can help!

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.

To view on more buy to let mortgages, find our article here.

Speak to an expert Stipend Mortgage Broker

A mortgage broker who specialises in stipend PhD, Clergy, graduate, medical, and other types of stipend, will be able to give you a better idea of exactly where you stand in the market and show your income to the lender in the best light.

If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 21st February 2020
OnlineMortgageAdvisor 2020 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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