Understanding your mortgage when you have cancer

Applying for a mortgage usually involves 4 main stages:

• You apply for an agreement in principle. This is sometimes called a decision in principle. This document shows how much you may be able to borrow to buy a home.
• You give your lender or mortgage adviser documents that show your income, employment, spending and current address. You may also need proof of identity, such as a driving licence or passport.
• If you apply with a mortgage adviser, they will explain your options. You can decide on the right mortgage for you.
• You apply for your chosen mortgage. The lender may allow you to apply by phone, in branch or online.

When you apply for a mortgage, the lender does not usually ask questions about your health. If your cancer diagnosis does not affect your income or employment, your application should not be complicated.

The lender will ask questions about your income. If there are gaps in employment history or changes to your income, they may want to know why. They may ask if you are expecting your income or spending to change in the future.

If you think your cancer is likely to affect your ability to pay the mortgage, you should tell them. We have more information about talking to your lender.

The lender decides if you can afford the mortgage payments. When you apply, they check your income and spending. The lender needs to see evidence of your income, such as pay slips or bank statements. They look at how much you spend each month on essentials, such as:

• council tax
• childcare
• travel buildings
• insurance.

This is an affordability assessment. The lender also considers how your mortgage payments would change if interest rates rise.

You can go online to find out how much money a mortgage lender is likely to lend you. A mortgage calculator tool is available on the MoneyHelper website.

You can apply directly to a lender or use an independent mortgage broker. They compare different mortgage deals and recommend the best deal for you. Most independent brokers charge fees for this service, even if you do not take the deal.

If you apply directly to a lender, you can avoid paying a broker. But the bank or building society only tells you about the mortgages they offer. In some cases, they may offer special deals not available through a broker.

A family member or friend may know of a broker you can use. Mortgage brokers should be approved by the Financial Conduct Authority (FCA). You can check that brokers are on the FCA register.

You can find brokers in your area by visiting:

• The Personal Finance Society
• Wayfinder

Some people have other investments they plan to use to pay their mortgage. These may include individual savings accounts (ISAs) or a pension.

An ISA is a savings or investment account where the interest or income is tax free, while the money is in that ISA. There is an ISA allowance for each year. This is how much money a person can save in an ISA that year. For the 2022 to 2023 tax year, that amount is £20,000.

There are several types of ISA.

Cash ISA

There are different types of cash ISA available, such as the following:

• An instant access ISA – you can take out money at any time, but the interest rate may be lower than other ISAs. The interest rate is usually variable, which means it could go up or down.
• A regular saver ISA – you make regular monthly payments to get a higher interest rate.
• A fixed-rate ISA – has a guaranteed interest rate if you do not take out any money for a set time. This interest rate is often higher than other ISAs. You usually lose some or all of your interest if you take your money out before the time is up. In some cases, you cannot withdraw your money at all before the set time period is over.

Cash ISA returns are usually lower than returns from the other types of ISA. Your money is safe in a cash ISA. This is because any funds up to £85,000 are protected by the Financial Services Compensation Scheme (FSCS).

Stocks and shares ISA

A stocks and shares ISA is an investment account. You are investing your money in the stocks and shares of companies. There is the potential to get higher returns. But you could lose money if the stock market does badly. The value of investments can go down as well as up.

Lifetime ISA (LISA)

You can use the savings from a lifetime ISA (LISA):

• when buying your first home – you will need to have a mortgage and buy a property for less than £450,000
• for later life, when you are aged 60 or over
• if you are terminally ill, with less than 12 months to live
• if you take out your LISA money for any other reason, you must pay a 25% charge.

A LISA can be a cash ISA, a stocks and shares ISA, or a combination.

To open a lifetime ISA, you must be aged 18 to 39. You can pay in up to £4,000 every year, until you reach the age of 50. This money counts towards your annual ISA allowance. The government adds a 25% bonus to your savings, up to a maximum of £1,000 a year.

Your husband, wife or civil partner can inherit your ISA allowance if you die. Your ISA allowance can be added to theirs. This is called an Additional Permitted Subscription (APS).

Your ISA will be closed when:

• your executor closes the ISA
• the administration of your estate is complete
• it has been 3 years and 1 day since the date of death – in this case, your ISA provider will close your ISA.

There will be no income or capital gains tax to pay. But ISAs are part of your estate. Your beneficiaries may be charged inheritance tax.

If you die, stocks and shares ISAs can be transferred to your husband, wife or civil partner if they have the same provider as you. Or the provider can sell the stocks and shares, and give the money to your beneficiary. This may be important if you have a joint mortgage.

An unmarried partner cannot inherit your tax-free ISA allowance.

Contact your ISA provider and the provider of your husband, wife or civil partner’s ISA for more details on inheriting ISAs.

We have more information about managing money at the end of life.

Some people may choose to use part of their pension to pay off their mortgage.

Private pensions usually have an age you can start accessing them. It is normally from the age of 55. But this is increasing to the age of 57 by 2028. You may be able to take out the money you have saved in your pension as cash. It is a good idea to get advice about how this could affect your tax. Remember that if you use pension savings to pay off your mortgage, you will have less to live on when you retire.

If you die before the age of 75 and have not used all your pension savings, you can pass them on tax free to your nominated beneficiaries. This may be important if you have a joint mortgage.