Ashley Pearson, Head of Intermediaries at Loughborough Building Society
The use of stipend and bursary income for mortgage affordability purposes is a relatively niche and unknown area of the mortgage market.
Yet, every year, thousands of people are in receipt of this type of income as they embark on their studies and begin to lay the foundations for their future career.
For many of these people, studying may be a requirement of their chosen profession, while for others, it may be that they’re returning to further education or opting to take another career path later in life.
Whatever the circumstances, many of these professionals are likely to harbour homeownership aspirations at some point, and the ability to use stipend or bursary income to get on the property ladder can make all the difference in helping them achieve their goals.
Understanding the income
A stipend is a form of income commonly given to groups of certain workers in place of a traditional salary. This includes PhD students, members of the clergy and charity workers. The purpose of a stipend is to cover essential expenses such as food, transport, phone bills and rent while the individual gains experience, training and education in a certain area.
A bursary is similar to a stipend, in that it’s generally given to eligible students to help them fund their studies. They tend to be dependent on a student’s household income and other financial information. In some cases, bursaries are provided by companies to encourage students to study in certain underrepresented fields.
Although this area of the market can be quite niche, there are a handful of lenders in the market who will accept stipend or bursary income for affordability purposes for those borrowers who fall into this category and wish to apply for a mortgage.
Obviously, borrowing criteria vary between each mortgage lender, but at Loughborough Building Society, for example, we can use 100% of the income received for affordability purposes as long as there are 12 months remaining on the bursary or stipend agreement.
Real-life scenarios
As a result, we receive and process a lot of applications from brokers with clients in receipt of this type of income, the most recent being from a 57-year-old man who had recently gone back to university to study engineering and was in receipt of a bursary.
With two years left to go on his course, the client wanted to raise money from his buy-to-let (BTL) property and use his bursary income to purchase a static caravan to live in while studying. While this situation is certainly unique, it does show how bursary income can be used towards a property purchase, even in more unusual circumstances.
Another example includes professional athletes such as Team GB students in receipt of stipends to help them finance their living costs while they study and train. In this situation, earning a stipend or bursary income would not exclude the client from taking out a mortgage, provided they met the lender’s borrowing criteria.
It’s also worth remembering that all these higher and further education borrowers will eventually come to the end of their studies and become newly qualified professionals. At which point, they’ll have the option to move onto another mortgage product with an enhanced income multiple.
In this situation, we’ll consider applications up to 95% LTV from newly qualified professionals previously in education or vocational training who have not completed six months in their new role or who have a contract of employment to start in the next three months.
For example, if the applicant has no employment history but qualifies as a medical doctor in May and has a contract of employment within the occupation to start in August, then this would be accepted. Other professions considered would be a surgeon, anaesthetist, barrister, dentist and pilot.
I hope these examples outline that earning a stipend or bursary income is not a barrier to taking out a mortgage, and brokers with clients that fall into this category should ensure they speak to a lender familiar with this area of the market who can guide them through this process.