Navigating the mortgage application process can be complex, particularly when it comes to providing evidence of your income. Proving your income is crucial as mortgage lenders need assurances that you can afford mortgage payments. This guide will show you how to submit proof of income for a mortgage application whether you’re employed, self-employed or have multiple sources of income.
Understanding Proof of Income
Proof of income is an integral component of any mortgage application, serving to verify your ability to repay the loan. Lenders use it to determine your repayment capacity; how they verify it may vary based on your employment status and requirements from mortgage providers.
What Is Proof of Income?
Proof of income is one of the primary considerations lenders use when assessing an application for a mortgage loan, as it allows them to verify your ability to repay.
Why is Proof of Income Important to Mortgage Lenders?
Proof of income provides mortgage providers with an accurate picture of your financial circumstances, helping them decide how much money to lend at what interest rate. Most lenders rely on income multiples as a starting point to determine lending decisions; typically 3.5 to 4.5 times your annual income is considered acceptable by mortgage providers. Furthermore, affordability assessment tools will calculate your debt-to-income (DTI) ratio. Calculating a DTI ratio involves dividing your monthly debt payments by your income plus any eligible income, then multiplying this figure by 100 to get a percentage figure. Each Mortgage provider will have different requirements when it comes to providing proof of income; so it is crucial for applicants to understand these standards when seeking financing.
Proof of Income for Employed Individuals
If you’re employed, the process of proving your income is relatively straightforward as most lenders will only need your recent payslips.
Payslips: How many payslips for mortgage UK?
In the UK, mortgage lenders generally require the last three months’ worth of payslips to verify income. Additional documents such as P60 forms from the past two years may also be needed, especially for contractors or those who are looking at getting a mortgage with a new job. If you are a contractor on a fixed-term contract, you can learn more about the specific requirements in our guide on Fixed-Term Contract Mortgage For Contractors. These documents provide a comprehensive view of the borrower’s financial stability and earning potential. Requirements can vary among lenders, so consulting with a mortgage broker or lender is advisable. While the standard requirement is typically three months of payslips, other factors may influence the mortgage application. Understanding these requirements can streamline the process and increase the chances of approval.
Proof of Income for Self-Employed Individuals
For self-employed mortgages, proving income can be a bit more complex. You’ll typically need to provide your SA302s and tax year overviews for the last three years, which can be found on your HMRC portal or provided by your accountant. Occasionally lenders will ask self-employed applicants for evidence of recent earnings. They may ask for a statement for the last 3 months from your personal bank account and sometimes the last month’s bank statement from your business bank account.
Accounts and Tax Overviews
If you run a limited company, lenders might assess your income using any salary and dividends you pay yourself, evidenced by your SA302s and a tax year overview for the past 3 years. Some lenders might also consider the net profit of your business, which would be evidenced by your accounts.
Other Forms of Income
Aside from regular employment or self-employment income, other forms of income can also be considered by mortgage providers. This could include bonuses, commissions, overtime, pension, overseas income, state benefits, university bursary or grant, child maintenance, and rental income from another property. The acceptance and the percentage of these income types that can be considered can vary among lenders.
Bonuses, Commissions and Overtime
Mortgage lenders often consider various forms of income beyond your basic salary. However, the acceptance and the percentage of these income types that can be considered can vary among lenders. Here’s a breakdown:
- Bonuses: Lenders typically require a track record of these payments, often over the last two years. They usually average the bonus amounts over this period to calculate your total income.
- Commissions: Like bonuses, commissions are often averaged over a period of time. A mortgage lender will want to see a consistent history of earning this income.
- Overtime Pay: If you regularly earn overtime, this can be factored into your income. A mortgage lender will look for a consistent history of overtime pay.
Always provide evidence of your income – bank statements, payslips, tax returns and other financial documents can serve as evidence for lenders to assess whether you can repay a loan.
Evidencing Bursary, Grant and Stipend Income
If you’re seeking a mortgage while training or completing a PhD, you may be receiving financial support towards living costs, which you may wish to declare as income. Here’s how you can evidence this income and how lenders view it:
- This income can be evidenced through a letter detailing the breakdown of payments from the university or training body.
- Some lenders won’t consider this form of income at all, owing to the fact that these payments will typically only last a few years.
- Other lenders recognise that if you can afford a mortgage before you enter full-time employment, your income will likely increase once you qualify.
- More flexible lenders are often willing to account for 50% of this type of income, and a few may consider 100%.
Proof of Retirement Income
If you’re hoping to fund a mortgage with your pension, either as a sole or supplementary form of income, here’s how you can evidence this income:
- Most lenders are happy to consider 100% of the pension amount.
- If you receive a state pension, this can be evidenced with an official letter from the Department of Work and Pensions (DWP).
- If you have a private, or multiple private pensions, you’ll need a letter from your private pension provider(s), alongside the annual P60s you receive from each of them.
- These documents should detail the calculation of your pension and any pension credits you’re entitled to.
- Lenders may ask for three months’ worth of bank statements alongside this.
Evidencing Benefit Income
Many lenders are happy to accept benefits as a form of mortgage income. Here’s how you can evidence this income and how lenders view it:
- A proof of benefits claim (sometimes known as a Universal Credit award letter) can be obtained from the relevant benefit office.
- This letter should detail all or some of the following information: The rates of benefit you get and payment dates, your last fit note, your letter of entitlement to benefit (if within the last 5 years), and any evidence used in a dispute or investigation.
- If you’re set to receive benefits on an ongoing basis, for example, those with a permanent disability, lenders are more likely to accept and consider a greater percentage of this as income.
- If your circumstances are likely to change in the future, i.e., you’re claiming child tax credits until the kids are old enough to go to school, or Universal Credit while you look for a new job, they’re likely to carry less weight, or may not be accepted at all.
Proof of Overseas Income
If you’re hoping to secure a mortgage with overseas earnings as your main form of income, here’s how you can evidence this income and how lenders view it:
- It’s worth approaching a specialist lender due to a plethora of variables affecting the viability of overseas earnings.
- Influencing factors include the nature of your work (employed / self-employed basis), length of time in employment, where the company is registered and trading, the type, and stability of the sector, what currency you’re paid in, where the tax is paid, and the bank you’re paid into.
- Many mainstream providers can shy away from where foreign income is concerned, but those that specialize in the niche may be happy to consider 100% of the earnings as income if the circumstances are right.
The Role of Bank Statements
Mortgage providers frequently request bank statements as they give lenders an accurate picture of your financial status and spending habits. Bank statements provide proof of earnings – particularly if you’re self-employed – while they can also verify other forms of income such as unemployment benefits or rental income.
Why Lenders Request Bank Statements
A bank statement showing earnings can give a clear picture of your financial situation and spending habits can be required by lenders. If a depo
The Role of a Mortgage Broker
A mortgage broker can provide valuable assistance in the mortgage application process. They can provide bespoke advice based on your income, sharing what evidence can be used to qualify for a mortgage in your situation and how many months’ or years’ worth you’ll need to supply.
How a Broker Can Help
A specialist mortgage broker will consult on whether any of your supplemental income could count towards your affordability assessment and share which lenders are more lenient when it comes to proof of earnings for a mortgage.
Proving Rental Income
If you’re planning to purchase a property with the intention of renting it out, you’ll need to prove that the rental income will be sufficient to cover the mortgage repayments. Most UK mortgage providers assess buy-to-let (BTL) mortgage eligibility using the borrower’s estimated rental income, rather than personal earnings. However, some also have minimum income requirements, especially for first-time investors that present added risk.
Rental Income and Mortgages
Most lenders require that the rental income be between 125% and 145% of the mortgage repayments. They will arrange for a valuation of the property and the surveyor will advise what they believe the property would rent for on the open market.
What if You Don’t Have Enough Proof of Income?
If you’ve recently entered the workplace or switched to being self-employed and don’t have enough evidence to submit, don’t panic. There are lenders who don’t require as many months’ or years’ worth of payslips or accounts. It’s worth noting that self-certification or ‘self-cert’ mortgages, which allowed applicants to ‘self-certify’ their earnings without having to provide evidence of income, were banned in the UK in 2011 after the credit crunch.
Seeking Professional Advice
A specialist broker can advise you on which lenders have a more relaxed approach and may be able to find you a lender who will accept as little as three months of accounts.
Can You Get a Mortgage with No Proof of Income?
In the past, self-certification mortgages or ‘self-cert’ mortgages were available, which allowed applicants to ‘self-certify’ their earnings without having to provide evidence of income. However, these were banned in the UK in 2011 after the credit crunch.
The Importance of Proof of Income
Typically, in order to have any form of income considered when applying for a mortgage loan, proof must be presented. To reduce fraud and money laundering risks, funds also need to be verified with paper trails; large sums of untraceable cash should not be considered acceptable as they could lead to serious complications later.
If purchasing a property lenders will also want to see proof of deposit. If in a savings account, they will want your latest bank statement showing your deposit.
How do I prove my income for a mortgage?
To prove your income for a mortgage, you'll typically need to provide recent payslips if you're employed, usually from the last three months. For self-employed individuals, you'll need to provide SA302s and tax year overviews for the last three years. Other forms of income, such as bonuses, commissions, or income from rent, can also be considered by mortgage providers.
Do you need 3 months payslips to get a mortgage?
Yes, most lenders require at least three months' worth of payslips to verify your income. However, requirements can vary among lenders. Some may require more or less, depending on their specific policies and your employment status.
Can I get a mortgage without proving my income?
As it's difficult for lenders to assess your ability to afford mortgage payments without proof of income, getting a mortgage without it may be challenging. But some lenders may have more flexible requirements, especially for buy-to-let or bridging loans.
What income is taken into account for a mortgage?
A mortgage provider will typically consider regular employment or self-employment income. They may also consider other forms of income such as bonuses, commissions, overtime, pension, overseas income, state benefits, university bursary or grant, child maintenance, and income from rent from another property.
Understanding the proof of income requirements for a mortgage application can be complex, yet essential to the process. No matter whether you’re employed, self-employed or have multiple income sources – knowing exactly which proof of income to provide will make things much smoother when applying. If any part of this process seems unfamiliar or unclear it is always wise to consult a broker or financial advisor as they can offer tailored advice specific to your circumstances and help guide through the application process more smoothly.