Fostering is an incredibly rewarding path, providing stability and love to children in need.
As a foster carer, you face unique considerations when looking for a mortgage.
We understand that your income structure is different, and some lenders may not grasp the true scope of your financial capabilities. Let us guide you through the mortgage process, finding lenders who appreciate your commitment to fostering and helping you achieve your home-ownership dreams.
Understanding mortgages for foster carers
As a foster carer you will receive an allowance, and sometimes additional fees, as payment for fostering a child.
This is your earned income and it can be used when applying for a mortgage.
The main problem that foster parents experience is that there are quite a few lenders that don’t fully understand the make up of your income.
Firstly, it can often be sporadic, as children in your care come and go.
And secondly, it is paid to you as a self-employed worker, with the expectation that you can offset your direct expenses to reduce the income tax burden.
Being self-employed
Unlike traditional salaried employees, foster carers in the UK are classified as self-employed for tax purposes. This means you’ll need to register for self-employment with the Taxman (HMRC).
You’ll be responsible for filing a Self Assessment tax return each year. This return details your income and expenses related to fostering, allowing HMRC to calculate any tax owed.
How lenders assess this income
If you are self employed and applying for a mortgage it is normal practise for the lender to use your net profit figure when working out how much you can borrow.
Your net profit is calculated by subtracting your allowable business expenses from your gross income. This reduces your personal income but also affects how much you can borrow.
There are some lenders that will allow a foster carer to use their gross income (allowance and fees) which provides a higher mortgage amount.
Eligibility criteria
As long as you meet the lender’s standard eligibility criteria, you should be able to qualify for a mortgage.
Getting approved for a mortgage normally requires:
- A minimum age of 18.
- A deposit of at least 5% of the purchase price or property value. A higher deposit could get you better rates.
- A good credit score.
- Low debt to income ratio and adequate affordability.
Most lenders prefer you to have been fostering for six consecutive months. This gives them a good indication of the level of income you may receive in the future.
Options are available from specialist lenders with only three months of fostering.
Eligibility also requires a property type that the lender will be happy with.
Property criteria
What we are talking about here is the type, method of construction and condition of the home.
A lender uses your home as security for the mortgage. In the event that you default on your repayments they will sell the property so they can get their money back. This means it has to be a saleable property.
Our page about Specialist Property Mortgages will show you many types of property that can be difficult to mortgage. These can include properties with an annex, ex-council houses or properties next to a business.
What the property is made from is also important. PRC concrete houses, single skin walls and thatched roofs can all pose problems, with a restricted number of lenders willing to consider them.
And lastly the property must be watertight and habitable on the day of completion.
Mortgage lenders are not interested in funding an uninhabitable property, for that you will need a short-term bridging loan.
Pop in a few contact details and a qualified broker will call you back when convenient.
Types of mortgage
You will have the full range of mortgages available to you. Although the specific choices will differ between lenders.
Residential
Residential mortgages are for the home that you live in. A purchase mortgage will allow you to buy a property and a remortgage switches an existing mortgage to a new lender.
Options are available for first time buyers, guarantor mortgages and JBSP mortgages.
Investment
Investment property mortgages would be for:
Interest rates
The actual rates will always depend on the lender but the main interest rate options are:
Fixed rate: Fixed interest rate mortgages are available in a range of different terms, usually between one and ten years. Once the fixed rate starts your monthly payments won’t be affected by interest rate changes.
Tracker rate: A tracker rate mortgage is a type of variable rate mortgage, which means that the interest rate you pay can go up or down in line with the Bank of England’s (BoE) base rate. Unlike fixed-rate mortgages, a tracker rate can change so the amount you pay each month could go up if interest rates rise.
Variable rate: Variable rate mortgages are linked to the lender’s Standard Variable Rate (SVR). The interest rate you pay will be set by your lender and won’t necessarily rise or fall in line with changes to the Bank of England Base Rate. Your repayments will change when the SVR changes.
Repayment methods
The repayment method is the way that you will pay the mortgage back. There are actually three different options but not all of these will be permitted by your lender.
- Repayment – The traditional capital and interest mortgage where you pay back some of the mortgage each month.
- Interest only – With an interest-only option you only pay the mortgage interest each month and nothing towards the capital sum.
- Part and part – A part and part mortgage is a combination of 1 & 2 above.
Mortgage term
The term is the number of years that your mortgage is setup for.
Traditionally, the standard mortgage term has been 25 years. With rising mortgage and housing costs borrowers are now choosing longer terms, such as 30 and even 40 years. These are sometimes called marathon mortgages.
The term will directly affect the monthly cost of a repayment mortgage, the longer the term, the lower the repayments.
How much can a foster carer borrow
You will normally be able to borrow a maximum of 4-5 times your provable earnings. So a household income of £45,000 could qualify for a mortgage in the range of £180,000-£225,000.
Each lender will have their own opinion of your income. Some will use 100% while others apply a cap.
There will also be lenders that only look at your self-employed net income, as shown on your tax returns and SA302.
By using a lender that caps your fostering income, or perhaps doesn’t use it at all, you will find that the amount you are offered is considerably reduced.
To fully utilise your income position you need a lender that is aware of how fostering works and how you get paid.
Affordability
All lenders will perform some affordability checks. This looks at how you would be able to afford the new mortgage monthly repayments.
They take your earnings as a foster parent as a starting point but then include what you spend your income on. This will include living and travelling expenses as well as debt repayment and other fixed commitments.
If you are over committed, the lender may decline the application or offer a lower mortgage amount.
Occasionally your income arrangements can be the problem. Some lenders may not include certain elements of your income into the calculations, or only use 50% instead of 100%.
This can be avoided by always using a mortgage adviser to find the right lender for your style of income.
How much do mortgages cost?
The cost of a mortgage is affected by the loan size, the interest rate and the loan term.
You can use our mortgage calculator to accurately calculate the monthly repayments.
These pages may also be of interest:
Average Mortgage Payments: Understand what homeowners across the country are paying and how property location can affect your mortgage outlay.
Mortgage Repayments Guide: Learn more about the monthly cost of different mortgages, including repayment and interest only.
How much do you need to earn: We explain mortgage affordability and give a guide on how much you need to earn.
Proving your fostering income
Our brokers will have access to lenders that can assess your income using your remittance notices. This means they can use 100% of your gross income before expenses, increasing your borrowing capacity.
A letter from your local authority/agency confirming your fostering history and income is also normally required.
You will also need to provide bank statements to show the income receipts.
How to apply
Choosing the right lender is important as not every lender offers mortgages suitable for foster carers.
Partnering with a specialist mortgage adviser can be a game-changer.
It means they know where to look for lenders who cater to your unique needs instead of wasting time with those who may not fully appreciate your situation.
Before formally approaching a lender, you may want to test the water with a decision in principle (DIP). This is a mini application, that doesn’t affect your credit file, but does give a strong indication of how a lender feels about you.
It can then give you the confidence to move on to a full application, knowing what your borrowing limit is.
Improve your chances of success
Getting yourself organised and ‘mortgage ready‘ before applying for a mortgage is one of the best things you can do.
Whether you are buying your first home or thinking of moving somewhere new, there are a number of ways that you can improve your situation, which will also speed up the mortgage process.
It’s really important to allow yourself enough time to gather everything together.
Credit status
Get a copy of your credit report. The report will show all sorts of credit related information and you need to make sure that it is all correct. Any errors need to be fixed.
Mortgage broker
Speak with a mortgage broker, they will be able to see how well you ‘fit’ a lenders criteria and can make practical suggestions and tips on how you can improve your situation.
Decision in principle (DIP)
Ask your mortgage adviser whether a Decision in Principle, or DIP, would be a good idea. Most first time buyers will benefit from one. A DIP or AIP will provide some extra confidence in your ability to borrow the size of mortgage you need.
Electoral roll
One factor that can greatly impact your mortgage application and creditworthiness is your presence on the Electoral Roll. The Electoral Register, is a comprehensive record of eligible voters in the United Kingdom. Am I on the Electoral Register?
Financial Associations
If you have previously applied for any type of credit with another person, the Credit Reference Agencies (CRA) will have ‘linked’ you to the other party. If an old or irrelevant financial association is still on your report, it is important to remove it.
Paperwork
Get your paperwork in order. The main documents needed are: Driving licence, Passport, Utility bills,
Last three/six payslips, Most recent P60, Company accounts, Self-assessment returns, SA302, CIS vouchers, Bank statements, Proof of deposit
Pay your bills
on time. (always)
Don’t apply
for any more credit before or during the mortgage application process. This could seriously damage your chances of being approved.
Credit limits
Stay well within your credit limits and if possible, reduce any debts held on credit cards or store cards.
Mortgage broker
Contact an experienced mortgage broker. Oh, we said that already. Don’t forget!!
How a broker can help
The best way to find and compare deals is by using a qualified whole of market mortgage broker. An experienced broker will do the research on your behalf, finding your ideal mortgage from over 100 lenders.
They will understand your industry, your pay structure and the lender’s that favour careers like yours.
High street banks such as Barclays and Nationwide will accept foster carer income but better deals can often be sourced from the more niche lenders.
Searching for your own mortgage is very time-consuming and can also be quite confusing. While some people are happy to do this themselves, others recognise the advantages of using a qualified broker.
- What is a whole of market mortgage broker?
- What does a mortgage broker do?
- Do mortgage brokers charge a fee?
- Why should you use a mortgage broker?
- Why would you use a mortgage broker instead of a bank?
- How do mortgage brokers get paid?
- Mortgage broker vs Bank: Which is better for you?
- What are the advantages of using a mortgage broker?
- Ten Reasons to Use a Mortgage Broker
Potentially. Lenders may be more comfortable with long-term fostering placements that demonstrate income consistency. However, don’t let experience with short-term or respite care discourage you.
Some lenders may view foster children as dependants, which could impact your affordability calculations.
A good credit history is crucial for all mortgage applicants, and can be even more important for self-employed individuals, as it provides another way to demonstrate financial responsibility.
When applying for a mortgage as a foster carer, you’ll need to be prepared to provide a combination of documents to demonstrate your income. This typically includes tax returns (SA302s) to establish your fostering income history. Additionally, detailed remittance slips from your fostering agency or local authority will provide a breakdown of your individual payments. Finally, a letter from your fostering agency can be particularly helpful, confirming your length of service, the types of foster placements you’ve had, and your typical income level.
Yes, remortgages are available for foster parents.
Yes! A joint mortgage application where one partner has stable employment can significantly boost your borrowing potential.
Most lenders require enough spare bedrooms to accommodate foster children. Beyond that, restrictions will be similar to those faced by other borrowers.
Yes, mortgages are available for first-time buyers.
We work with one of the largest and most experienced independent mortgage brokers in the UK.
They have been experts in the mortgage industry for over 45 years, so they understand the challenges that clients can face when looking for a mortgage.
With qualified advisers based across the UK, they have the experience and expertise to help guide you through the complex process of buying a house, remortgaging, raising bridging finance or investing in the property market.
Fully FCA regulated, they have more expertise across more lending solutions than any other broker and have specialist teams in place to work with clients through every stage of their journey.
To get started please call us on 0330 030 5050 so we can match you to a specialist broker, or use the form below.
