A Complete Guide to Armed Forces Mortgages
If you’re a member of the armed forces, then you have a range of challenges that can present when it comes to acquiring a mortgage. If you’re having trouble getting your first mortgage, changing your mortgage or remortgaging, or trying to get some protection, then this guide will go through all of your options and more. Fortunately, there are a range of solutions available to you when it comes to personal protection and armed forces mortgages.
What is an Armed Forces Mortgage?
There are normally two types of mortgage that fall under this category, with the first being an armed forces help to buy scheme and the second being an armed forces mortgage. These are two specific mortgage products, but you may also have come across general mortgage products that are either advertised to or benefit those who are in the armed forces.
To qualify as being in the armed forces for specific products, you will need to be a serving employee of the UK Royal Air Force, Army or Royal Navy. In many instances, reservists are also entitled to mortgage benefits and in rarer cases, veterans. If you’re a reservist or a veteran looking to make use of the armed forces mortgages, then you should discuss your circumstances with a mortgage adviser to find the most appropriate product for you.
The Armed Forces Help to Buy Scheme
This mortgage is designed to help get armed forces personnel onto the property ladder. Despite it sounding similar in name to a general help to buy scheme, it is very different with a specific focus on helping those serving in the military to buy their first home.
To be entitled to this scheme, you must be regular personnel. Reservists and veterans will need to apply for the normal help to buy scheme. There is set criteria that you must meet to get the armed forces help to buy scheme, but if you tick all of the boxes, it is an incredibly generous scheme.
To qualify, you must have at least 6 months left on your armed forces contract, have served a certain period of time already, and be medically fit for duty. Because being in the military has such diverse challenges, these rules aren’t necessarily set in stone and exceptions can be made in rare circumstances upon application. These exceptions tend to be made around medical standards, rather than the amount of service served and to be served on a contract.
What Does the Scheme Give Armed Forces Personnel?
If you qualify, you may be able to borrow up to 50% of your annual salary (with a cap of £25,000) to act as a deposit on a standard mortgage. Alongside this help to buy scheme, armed forces personnel are also able to benefit from the standard help to buy schemes where eligible. This means that as an overall package, the armed forces help to buy scheme when coupled with something like the equity help to buy scheme can be a real help.
If you’re thinking about using the armed forces help to buy scheme or any of the standard help to buy options available, it is worth doing the following three things before deciding on the best route.
- Read through the literature of the relevant scheme provided on the .gov website.
- Discuss your circumstances with a mortgage adviser who will be able to assist you with help to buy schemes and mortgages.
- Search for properties in the budget drawn up between you and your mortgage adviser to make sure what you want to do is achievable.
A good mortgage adviser will be able to help and guide you through the tricky processes of help to buy schemes. These can often present unique challenges, like the help to buy ISA which allows you to pay your personal contributions towards an exchange deposit but the government bonus portion is paid out upon completion. This makes it suitable as a mortgage deposit, but not as an initial (exchange) deposit.
Don’t worry though, a mortgage adviser will know all of the ins and outs of help to buy and will avoid any unnecessary headaches.
What are Armed Forces Mortgages?
Another term you may have come across is the ‘armed forces mortgage’ which are essentially a special type of mortgage product for those who are in the military. Unlike the armed forces help to buy scheme, this product is normally available for reservists as well (but not always).
To explain this mortgage product, it is best to provide the problem that it seeks to solve. When armed forces personnel are deployed, historically it was preferable for them to rent out the property they had a mortgage on to cover costs while away from home. But, for anyone that has a mortgage, it is near impossible ordinarily to rent out a property on a residential mortgage product, and lenders specify that a mortgage must be changed to a buy to let mortgage.
Buy to let mortgages are specifically designed with property rental in mind and ensure the homeowner is charging enough rent to make the mortgage payment. This is calculated by the lender. Switching from a residential mortgage product to a buy to let mortgage is not only time consuming, but it is also costly.
For this reason, many armed forces personnel either left their properties vacant on deployment or suffered costs around changing mortgage products. To combat this, the government convened a panel of leading mortgage lenders to create a more flexible product for armed forces personnel.
As a result, the armed forces mortgage product was created and allows those who have one to rent out their property whilst deployed without changing the nature or terms of their residential mortgage. This is an exceptionally good product to have, especially given how difficult (nigh on impossible) it is to rent out a property on a residential mortgage and really benefits military staff on deployment.
How Do I Get an Armed Forces Mortgage?
When making your mortgage application you should discuss this with your mortgage adviser who will then discuss this with the lender. It is important to know that only a handful of major lenders accept this type of mortgage product, and many lenders on the market do not offer armed forces mortgages.
Your mortgage adviser will need to source a lender that can offer this product for you and then match you with the lender that fits your financial circumstances best. You can also remortgage onto an armed forces mortgage, but again, this should be discussed with your mortgage adviser during your initial conversation.
Life Insurance – Protection and Mortgages
A significant barrier to entry when it comes to being in the armed forces and looking to obtain a mortgage is that many mortgage providers require you to have a life insurance policy in place to cover the balance of the mortgage.
Of course, many people not only opt to cover the balance of the mortgage but also seek cover for illnesses and personal protection that pays a sum of money to loved ones in the event of passing away. If you’re a member of the armed forces, simply covering the basic life insurance requirement of a mortgage can be extremely difficult.
This is because many life insurers will not offer cover to those who are serving in the military. There are, however, some who do provide life insurance (though sometimes at a higher monthly premium compared to a civilian’s life insurance policy).
If you’re a member of the armed forces, you will have a death in service benefit, from the Armed Forces Compensation Scheme. This benefit is paid out to loved ones in the event you die when under contract to your chosen service. You will also no doubt be aware of specialised insurers like PAX, that provide military specific insurance policies for military personnel.
Military Death in Service
Your death in service benefit will either pay a fixed lump-sum or a multiple of your annual salary. Many death in service benefits pay up to 4x your annual salary, but this can change dependent on your rank and service length as well as the timing and circumstances of your death.
These rules have recently been revised to encompass both veterans and former personnel as well as the ongoing COVID-19 pandemic. It is worth reading up on this benefit and reviewing it every once in a while, as the rules change over time.
A military death in service benefit is different to PAX cover. It is also highly unlikely that a mortgage provider will accept a death in service benefit as mortgage protection as there is no exact payment amount attached to this benefit and the amount paid is largely dependent on circumstances and the decision at the time of a claim.
PAX Military Insurance
PAX is a military specific insurance provider that offers policies for armed forces personnel. Commonly you will know PAX for your personal accident cover, but they also offer a range of policies including kit, travel, and life insurance policies.
When it comes to your mortgage application, the life insurance policy provided by PAX is suitable providing that the amount of cover is always equal to or greater than the mortgage balance and the term is sufficient to cover the entire mortgage.
PAX is always worth getting a quote with for your mortgage protection insurance as they deal with armed forces life insurance policies on a daily basis. But – you should also ask your mortgage adviser to source quotes for protection insurance as well as PAX is quite often not the cheapest armed forces policy for life cover.
How to Get Started with an Armed Forces Mortgage?
As you may have guessed, although there are many benefits and options available to you as a member of the armed forces, it can also be a complex and confusing area to navigate.
The best thing to do is to contact us and discuss your personal circumstances and what you want to achieve. You may want to get onto the property ladder, or you may want to switch to an armed forces mortgage so you can rent out your property in anticipation of a future deployment.
You may even be a veteran or reservist that is looking to explore your mortgage options fully. Whatever your circumstances are, we will be able to look through our extensive panel of lenders and insurers to find you the most suitable product available with the appropriate schemes to apply for.
And, when it comes to protection, we know full well how good PAX insurance is and if we can’t beat their policy, we will tell you. In our experience though, the majority of armed forces personnel can source more competitive premiums by talking to us.
We are experienced in armed forces mortgages and protection, so get in contact for a no obligation mortgage discussion now and we will help you get the right products for your circumstances at the best price.
Get in touch.