MAJOR banks are set to make a huge rule change to help more people claiming child benefit get on the property ladder.
From today, Santander will count child benefit income up to £60,000 when considering mortgage affordability to reflect a recent rule change.
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It means the money parents get from the child benefit payment can now count towards income affordability for a mortgage.
This is how lenders decide if you’ll be able to make your payments on top of your other expenses.
NatWest, Nationwide and Lloyds Banking Group confirmed to The Sun that they are also changing their criteria to reflect this change.
Child benefit is designed to help parents with the costs of bringing up kids.
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Under the old rules, any parent earning over £50,000 would start to lose some of the monthly payment on a sliding scale.
It meant that if you claimed the benefit, you’d have to start paying back 1% for every £100 above the £50,000 threshold.
When income topped £60,000, the amount paid back would completely wipe out the benefit.
This has been referred to as the high-income child benefit charge and is paid back through annual self-assessment tax returns.
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However, from this month the threshold for receiving the benefit has increased.
As long as both parents earn below £60,000, they are now entitled to the full child benefit payment.
Mortgage experts have described the decision to reflect this change in mortgage lending criteria as “positive news for families looking to move to a new home”.
All three banks said this change will be for homeowners looking to remortgage and first-time buyers.
When applying for a mortgage, banks look at a range of factors to decide if they will lend money to you and how much, including income.
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Some banks refuse to lend to claimants, but others will consider your application.
Anyone hoping to borrow with Santander and use Child Benefit as proof of income when applying for a mortgage must provide evidence that they receive it.
This could be a recent bank statement/certified photocopy of building society or an NS&I passbook evidencing the payment.
Eligibility differs depending on the bank, and some will accept your application – depending on your financial circumstances.
Santander also revealed recently that it is now accepting Universal Credit payments when applying for a mortgage.
Rosie Hooper, chartered financial planner at Quilter Cheviot, said: “Including Child Benefit payments within these assessments may mean that families are able to borrow more and therefore could move to a larger home or perhaps to a more favourable area to better suit their family if they so wished.”
Meanwhile, Nicholas Mendes, mortgage technical manager at broker John Charcol, said: “These amendments will mean that perspective buyers can raise an additional £10,000-£15,000 which could be the difference between securing their dream home or having to make compromising or lose out on a property.”
Lloyds Banking Group has already introduced the change, while NatWest and Nationwide said it would be made “in the near future”.
How to claim Child Benefit
Child benefit is worth up to £1,331 a year for your first or only child. And up to £881 a year for additional children.
This works out as £102.40 every four weeks or £25.60 a week for your first child and £67.80 every 4 weeks or £16.95 a week for their siblings.
There is no limit the amount of children that can be claimed for.
Applying is straightforward and can be done in minutes at gov.uk or through the HMRC app.
Parents with a newborn baby should make a claim online as soon as possible and could then receive their first payment in as little as three days.
You can also backdate claims for up to three months.
Parents can make a claim and then choose to opt-out of receiving Child Benefit payments can still receive National Insurance credits if one parent is not working.
National Insurance credits build up your entitlement to the state pension.
Whether or not your application is successful will depend on whether you have other types of income or assets as well as the benefits.
You’ll have to prove that you can keep up with the repayments.
Financial planner Rosie from Quilter said: “It is important to remember that Child Benefit payments will stop on August 31 on or after your child’s 16th birthday if they leave education or training, so you will need to make sure you can afford your mortgage payments even once this support ends.”
Some banks will include specific conditions in their offer, such as only allowing you to use a certain percentage of your benefit payments to cover the mortgage.
A mortgage adviser can help you find a suitable provider who will consider your application.
They’ll also be able to find the best value deal for you.
Remember though, they’ll take a fee for their services so you’ll need to factor that into your costs.
Can I save for a home if I’m only receive Child Benefit or benefits?
Wannabe homeowners will need to have a deposit to put down on the home too.
Being on benefits doesn’t make it impossible to save some cash, and there are even some accounts designed to help you save.
But with some benefits there are rules on how much you can save.
For instance on Universal Credit, any savings you have up to £6,000 is ignored under the Department for Work and Pension (DWP) rules.
Money you have over this amount but under £16,000 will be counted when assessing your eligibility for Universal Credit payments.
Before you start saving it’s worth checking first how these rules might affect you, so you don’t lose payments unexpectedly or have the amount reduced.
There are certain saving accounts that can help you save for a deposit too – with extra cash top-ups from the government.
Help to Save is a type of savings account dedicated to those on certain benefits.
It’s for any savings, not just buying a first home.
Under the scheme, the government gives you 50p for every £1 you save into your account over four years.
You are allowed to save between £1 and £50 each calendar month and pay the money in via standing order or bank transfer.
You can then withdraw any bonus you’ve received at the end of the second or fourth year.
If you put the maximum £50 in for the four-year period it means you would get £1,200 in free cash from the government.
A Lifetime ISA (LISA) is a savings account that lets you put away up to £4,000 every tax year.
Anyone between 18 and 39 can open one and you can keep adding money until you are 50, but must make your first payment into one before the age of 40.
The big perk is that you get a 25% bonus on top of any personal contributions.
So if you added £4,000 into one this tax year, you would get another £1,000 free from the government.
It’s not just for those on benefits, but the money saved must either be for buying a home, or for retirement.
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If it’s used for anything else, you may face a withdrawal fee that could leave you with less money than you put in.
Checkout more schemes to help first-time buyers get on the property ladder.
How to get the best deal on your mortgage
IF you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
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