Whether you are buying for the first time or looking to move, you might be worried about getting your mortgage.
Finding the right deal for you, getting all the paperwork sorted and spending a lot of time with your mortgage adviser – it can seem like a big job.
And if you’re a foster carer, there’s a chance that the process will be that bit more complicated.
We’ve spent some time looking at the reasons for this and the ways you can get around it to secure a roof over your head for you and your foster children.
A taxing issue
One of the main problems facing foster carers is how HMRC treat their income. In the eyes of the tax man, foster carers are regarded as self-employed.
Normally whether you’re self-employed or work for a business, once you earn over a certain amount, you pay income tax. One of the main differences is that if you’re self-employed you’ll need to fill in a tax return each year. HMRC will tell you how much tax you owe, and you’ll pay it yourself, usually in two instalments. Whereas, if you are employed you will usually pay your tax direct from your wages via PAYE.
Although foster carers are deemed to be self-employed and do fill in a tax return each year, their income is calculated a little bit differently and this is what can cause problems when applying for a mortgage.
Foster carers are given tax relief on large amounts of their income (this depends on circumstances, such as how many children they foster and how long for but is often a high threshold).
Skewed affordability checks
When anyone applies for a mortgage, lenders use their own affordability criteria to work out whether the monthly repayment is manageable. So it’s important that borrowers and lenders are singing from the same hymn sheet if you like (that they’re both using the same figures).
This can get particularly confusing with foster carers exactly because HMRC consider them to be self-employed. Lenders often take the gross figure a borrower provides them with and make their own calculation of the net income. But, in most cases, foster carers are not taxed on all their income so the net income calculated by the lender will be lower than what they actually receive. It can therefore appear as though the mortgage is unaffordable when it may not be.
Although it can be more difficult for foster carers to get a mortgage, it is by no means impossible. You just need to know where to go for help.
Some lenders acknowledge the difficulty foster carers face when trying to obtain a mortgage and amend their criteria specifically with foster carers in mind. To help you secure a mortgage, lenders may ask for additional paperwork to prove your regular income – often from the past two years (if your statements don’t go that far back, your bank will be able to provide them for you).
They may also ask you to provide a letter from your fostering service, confirming that you are a foster carer.
If lenders can see a sustainable and regular income, they will then run the affordability checks against the full figure, rather than the net amount. This means you’re much more likely to be approved for a mortgage on affordability.
Of course, there are more elements to being approved for a mortgage than affordability – such as credit score for example - but nonetheless, this is a good start for securing a mortgage.
If you need more help
Foster Talk are a good port of call for advice on the finances associated with being a foster carer – you may find this document useful.
They also offer a helpline which you can call if you want to talk through your situation – you can contact them on 01527 836 910.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.