When you apply for a mortgage, your lender wants to be sure you’re able to pay it back. They will also decide how much to lend you based on what they think you can afford. As such, they will want to know how much you earn. But it’s not as simple as merely letting the lender know your annual salary. You’ll also need to prove you earn what you say you do, and if you’re one of the many asking: “what proof of income is required for a mortgage?” you’ve come to the right place.
Lenders’ requirements for proof of income for mortgage applications will differ. Typically, earned income is evidenced in the following ways:
Payslips: The standard requirements are three months’ payslips and two years’ P60s although there are lenders who will accept less than this.
Contract: Not all lenders will need to see this if payslips are available, but for those who have started a new job with no payslips, or in probation, the specialist lenders who can consider this will do so from the signed employment contract. For more information on getting a mortgage if you’ve started or are starting a new job read out article here.
Self-employed accounts: Most self-employed borrowers don’t have payslips to evidence all of their income (some Ltd company directors usually have an amount of PAYE to cover their tax free allowance and NI contributions). To evidence their income then, most lenders require either:
Accountant’s reference (qualified and signed off to confirm income)
Bank statements: The majority of lenders will also want to see the net income shown on the payslips / earnings from self-employment, to marry up with the figures on the corresponding bank account, for at least the last 3 months. Those that don’t ask for this still require advisors to have checked this information and hold it on file in case it is required in future to evidence that a suitably affordable mortgage was recommended.
What income is taken into account for a mortgage? As well as providing proof of salary for a mortgage you may have other sources of income that could be taken into account.
The table below will give you an idea of what counts as additional income for a mortgage in the eye of most UK lenders will accept and what percentage of them they’re likely to take into account…
Overseas income (e.g. earned in dollars / euros / yen etc.)
Evidencing Bonus income for a mortgage application
Bonuses are a good example. Some borrowers will have annual or monthly bonuses that could count as qualifying income for a mortgage.
Different lenders take different approaches when it comes to bonuses and similar forms of extra income, such as regular overtime and commission. Some lenders are happy to accept bonuses, others refuse to take them into account.
Of the lenders who will take a bonus into consideration, many will accept 50% of a bonus. There are a handful who are a little more generous too, and a minority who may offer you a mortgage based on 100% of your regular bonuses and your basic salary.
Do benefits count toward a mortgage application?
As you can see from the table above, most lenders are happy to consider some types of benefits when assessing income. Which benefits will and will not be accepted varies considerably, but there are lenders out there who will take the following into account and allow borrowers to use them to supplement their mortgage application…
Child tax credit
Working tax credit
Disability Living Allowance (DLA)
Industrial Injuries Benefit (IIB)
Incapacity benefit (IB)
Severe Disablement Allowance
There may be caveats attached for borrowers who are planning to use some of the above in conjunction with a mortgage application. For instance,
Evidencing child maintenance for mortgage applications
Where child maintenance is considered, most lenders want to see a court order as evidence of the payment. However, there are some that can consider if the payment is non-court order, so long as the payments have been received and show in full in the bank account, for a period of time that indicates it is likely to be sustainable and reliable going forward.
Evidencing benefit income for mortgage applications
Most benefits, if they are to be considered, need to be showing as regular payments on the bank statements, as well as having the full schedule of payment from the authority making payment. This, if a means tested benefit, must also display that the calculation has been made correctly in line with the applicant’s earned income.
For example, if receiving child tax credit and on the statement the “earned income” shows as £10k a year as the basis for the assessment, but the applicant is applying with £20k a year income, this often either indicates fraud, or that the income has only recently been received. If the latter, then the benefit income may well get recalculated and reduce – thus cannot be used to supplement income on the application until the updated payment schedule is available to support the application.
If you’re in receipt of any income type and are unsure whether it will count towards your mortgage application, get in touch and the advisors we work with will assess your application and connect you with a lender who specialises in your income type.
How to evidence self-employed income for a mortgage
Providing proof of income for self employed people is a little more difficult. Most lenders will want to see either three years of accounts or SA302 year-end tax calculations, full signed accounts, or a reference from their qualified accountant, usually for the last three years. Some lenders will, however, accept two or even one year’s figures in the right circumstances.
Note: An SA302 is a summary of the income you’ve declared to the HMRC. You can get the past four years’ worth of SA302s from the HMRC via the self-assessment gateway or via your accountant.
What proof of income for mortgage approval can contractors provide?
If you are a contractor, lenders looking for proof of earnings for a mortgage may ask for a copy of your work contact, documenting how much you’re being paid.
The line of work you’re in will also play a part. Some professions operate primarily on contracts and therefore the likelihood of having continuous employment is higher. Others may employ contract workers for short seasons only. Lenders in these instances will be concerned you’ll be out of work within a matter of weeks and, as such, may deem you as too risky.
For contractors to evidence income for a mortgage then, many lenders want to see a longer history of working and that income is sustainable and will be reliable going forward. They do this by requiring a minimum time with continued income, which for many lenders is 2 years, although there are some specialists happy to consider 12 months, and a handful happy to consider contractors that have worked for less than this, in the right circumstances.
The evidence required is often the contract itself, to check the details of when it started, when it’s set to end, and the terms for payment (i.e. on day-rate or project basis), as well as the corresponding customer bank statements, to check that the money has actually been paid.
What if I own a business?
If you run a limited company it can be a bit more complicated. Some lenders will only take into account the salary you have paid yourself from the company when assessing affordability. Others will consider any dividends taken or profits made.
The experts we work with will be able to identify the right lender for your circumstances and the structure of your company, so get in touch and they will search the whole of the market for the best deals and connect you with the best provider.
Evidencing income for a mortgage if you are paid by umbrella company
Some contractors opt to work under an umbrella company to avoid the rigmarole of maintaining a payroll, chasing late invoices and dealing with the taxman.
There are a number of benefits to operating this way, and chief among them is the fact your umbrella company can provide a more traditional history of your earnings to a mortgage provider. Contractors who run their own accounts might not have proof of their income until the end of a tax year, but with umbrella workers, this shouldn’t be an issue.
Umbrella company employees receive regular (weekly or monthly) remittance slips, which some lenders might accept as income evidence in the absence of tradition wage slips.
One thing to note, though, is that a specialist mortgage provider will likely be required if you work under an umbrella company. Some lenders might be unwilling to offer you a mortgage based on your full income, neglecting to take things like bonuses and commission into account, but there are specific lenders who offer products geared towards umbrella company employees, and the experts we work with know who they are.
For a while it was entirely possible to get a mortgage with no proof of income in the UK. These mortgages were known as self-cert or self-certification mortgages. However, these products were banned following the credit crunch. However, it is still possible to get a self cert buy to let mortgage from a small handful of lenders.
How do I get a mortgage without proof of income?
We are aware there are one or two overseas lenders that can consider self-cert mortgages, however, it’s worth noting if you were to take out a self cert mortgage from an overseas provider (and essentially get a residential mortgage without proof of income), you will have no UK protection as the loan won’t be regulated – not recommended for most homeowners.
Proving your income if you’re buying a buy to let
Most UK lenders prefer you to have income (£25,000 is a common minimum requirement) if you’re applying for a buy to let mortgage and will ask you to evidence it in the same way you would for a residential agreement, so all of the above also applies to this sector.
A small minority of lenders may consider offering a buy to let mortgage with no proof of income under specific circumstances, such as when the borrower has other sources of capital, such as an inheritance lump sum or redundancy package. Evidence of these funds either entering your account, or evidence that they’re on their way may be requested.
It may also be possible to obtain a buy to let mortgage with no PAYE income if you’re a professional landlord whose earning come entirely for a property portfolio. In this case, you may be expected to provide accounts for your properties or a self-assessment tax return so the lender can carry out income verification for your mortgage application.
For more information about proving income for a buy to let mortgage, consult our dedicated article on the topic or make an enquiry to be patched through to an expert.
Speak to an expert on income proof for mortgages
If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let the whole-of-market advisors we work with find the lender with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...
Find out more about how we help people with different income types