Mortgages

Published: 19 August 2013

A mortgage is a loan to buy a home. The mortgage holder borrows money and pays it back with interest over a period of time (the ‘mortgage term’) that is agreed with the lender – usually a bank or building society.

The loan is secured against the home so if for any reason you can’t repay it, the bank or building society can sell it to get back its money.

How much can be borrowed depends on the personal circumstances of the borrower, such as income, outgoings and whether they are buying alone or with a partner. There are two main ways to repay a mortgage:

Repayment – monthly payment is split between paying off the loan and paying off the interest owed on the loan.

Interest-only – monthly payment pays only the interest charges on the loan, and the borrower must arrange some other way to repay the loan.

Can you get a mortgage if you have HIV?

In short, yes, but not an endowment mortgage (see below).

Health is not part of the underwriting process for a mortgage. Instead mortgage companies look to assess affordability and check there is adequate security (i.e. the home is worth the amount of the loan). So they will check out things like income, employment situation and credit history.

The main difference with taking out a mortgage for someone who is HIV positive is the difficulty of getting life insurance to cover the loan – but this is not compulsory and there are now specialist life insurance policies available for people with HIV.

Mortgage lenders cannot insist that someone buys life insurance but borrowers may find that the lender tries to sell a life insurance policy alongside the mortgage.

Endowment mortgages

Endowment mortgages were popular in the 1980s and ‘90s but few are taken out now. With an endowment mortgage, the mortgage holder does not repay any of the capital they have borrowed during the term of the loan. Instead, the endowment policy should grow to produce a lump sum large enough to repay the loan in full at the end of the pre-agreed period, normally 25 years.

Monthly payments are made up of interest on the mortgage loan and the premium for the endowment. Within the package, the borrower also pays for life insurance which will repay the loan if they die.

In some cases an endowment will have been taken out before a positive HIV diagnosis. In this situation the same rules apply as to other life insurance policies: once the policy has been taken out and underwritten based on the information available at the time, the policy still stands regardless of any changes in health status later on.

Cashing in endowment policies

Because of the poor performance of many endowment mortgages, many people have cashed them in early and lost the life cover part of the policy.

Anyone who took out a life insurance policy before a positive HIV diagnosis should think very carefully – and seek professional advice – before they cash it in or surrender it. Once someone has been diagnosed with HIV it becomes more difficult, and more expensive, to obtain life cover, so if they have an existing policy it may be a good idea to hang on to it.

Who to get advice from

Anyone looking for a mortgage should consider using a mortgage broker or independent financial adviser. This will mean they have access to a wide variety of mortgage products on the market, not just those offered by a particular bank or building society.

Mortgage brokers don’t need to ask questions about health when someone applies for a mortgage, but they will ask questions about employment, income and credit history.

A mortgage broker might try to sell life insurance, or other types of protection policy, alongside the mortgage. But someone taking out a mortgage has no obligation to buy these products or to explain why they don’t want them. In any circumstances, it is usually a good idea to shop around for insurance.

If a mortgage broker or salesman is pressurising someone to buy life insurance alongside their mortgage and they know their HIV-positive status would make eligibility for a mainstream product unlikely but don’t want to tell their broker they have HIV, they could say they intend to look for a suitable policy later on.

A fee-based broker, rather than one who earns their money from commission, is less likely to pressure a client to buy insurance to protect their mortgage.

Some people may be eligible for shared-ownership or key worker schemes, or council right-to-buy schemes. Although mortgages for these schemes may be structured in a different way to standard mortgages, they are still underwritten based on financial situation rather than health status, so an HIV-positive status is not an issue. However, some shared ownership schemes may require life insurance to be taken out to protect the loan, so bear this is mind if you are considering applying for one of these schemes.

What to do if your income drops because of ill health

If a mortgage holder doesn’t have any financial protection such as Income Protection or Accident, Sickness & Unemployment (ASU) then they might struggle to make repayments if their income drops due to ill health or unemployment. There are several things they can do to prepare for or deal with this situation.

Self-insurance: This is another way of describing building up a savings pot for a rainy day. It takes time to build up a substantial sum, so the sooner it is started the better. Cash ISAs provide tax-free interest on savings, while other savings and investment vehicles can also deliver decent returns.

Flexible mortgages: Flexible mortgages allow overpayments and subsequent underpayments. Therefore someone can overpay on their mortgage when things are going well and underpay or take a payment holiday if their income drops. Check the mortgage terms to find out what is and isn’t allowed.

Interest-only: If someone is on a repayment mortgage they can save money each month by switching to an interest-only mortgage. It’s best to only do this as a short-term measure, as otherwise the mortgage holder will still owe the outstanding capital when they get to the end of the mortgage term.

Rent-a-Room: If someone has a spare room in their property the Government’s Rent-a-Room scheme allows them to earn up to £4250 tax-free each year from taking in a lodger.

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This content was checked for accuracy at the time it was written. It may have been superseded by more recent developments. NAM recommends checking whether this is the most current information when making decisions that may affect your health.

NAM’s information is intended to support, rather than replace, consultation with a healthcare professional. Talk to your doctor or another member of your healthcare team for advice tailored to your situation.