What Proof of Income is Needed for a Mortgage?

When applying for a mortgage, one of the first questions that springs to mind is: “what proof of income is required for a mortgage?”. It’s normal to be unsure about the answer. As most mortgage applications require income proof documentation, it’s wise to plan and prepare the paperwork well in advance of your submission date.

From payslips and bank statements to tax calculations, tax year overviews and P60s, the list of documents needed for a mortgage can seem overwhelming. When considering that each lender may have different income proof requirements, you should consider consulting with a mortgage broker or the provider directly to understand exactly what is needed.

Lenders request proof of income for a mortgage application to check that repayments are affordable and sustainable over the course of the term period. But the questions are: how can you show proof of income? And what exact documents do you need for a mortgage?

In this guide, we’ll explain what lenders normally request. Regardless of whether you’re employed, self-employed, or even unemployed with benefit income, this guide is for you.

While requirements vary between lenders, most applications follow similar documentation standards.

Let’s get started.

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What Proof of Income Do I Need if I’m Employed (PAYE)?

If you are employed and paid through PAYE (Pay As You Earn), lenders will typically request recent payslips and bank statements to verify your income.

The most common question asked by employed applicants in relation to income proof is: “how many payslips do I need for a mortgage?”. Most lenders request your latest three months but this requirement may differ depending on your circumstances and type of employment contract. A three-month payslip request is common for people on permanent, full-time contracts. However, if you work on a temporary contract, such as zero-hours, where your income is sporadic, lenders may request up to 12 months of consecutive payslips.

If you have just started a new job, you might wonder “can I get a mortgage with 1 month payslip?”. This may be acceptable but it largely depends on your employment history, contractual terms and the lender’s own criteria.

Some lenders may even consider a signed employment contract as proof of income without requiring payslips. Although these lenders are few and far between in the market as most will want to see that you have a secure and stable job, evidenced over many months.

Some lenders may be able to verify your income without needing document proof. With the use of Open Banking, lenders may be able to access your income data directly from your bank account. This speeds up the verification process, which may result in faster underwriting for your application. Open Banking is currently predominantly used by mortgage providers for employed applicants but this may change in the future as more companies embrace the technology.

What Your Payslip Must Show

When reviewing payslips for a mortgage application, lenders always check that the figures match those that have been declared. Underwriters will typically check your basic salary, any overtime or bonuses, tax paid, year-to-date income totals, and any deductions. If there are any discrepancies, underwriters may request explanations or new documentation before proceeding with your application.

Underwriters also expect your payslip to show your personal and company information. For example, your full name, employer’s name, pay date and tax period.

How Many Months of Bank Statements Do I Need for a Mortgage?

Most lenders will request your latest three months of bank statements for employed applicants and they should align with your payslips.

For self-employed applicants, lenders may request more than three months. It’s common for lenders to request 6-12 months depending on the circumstances around your business. For example, if your business is stable and has been actively trading for many years, they may just request 6 months of business bank statements. Whereas, if your business has only operated for a year or two and seen a decline in its profits, they may request the latest 12 months of bank statements. This is so that they can better understand the likely trajectory of the firm’s performance in the future.

If you have multiple bank accounts, mortgage lenders may request bank statements from each account so that they can fully assess your income and spending habits. If you regularly use multiple bank accounts, you should expect statements from all accounts to be requested by mortgage lenders.

Many borrowers ask the question: “how far back do mortgage lenders look at bank statements?”. The most common requirement is three months but underwriters can request more at their discretion if they need further clarification.

If you are worried about bank statement mortgage checks, you should consider consulting a regulated mortgage broker who can review your statements before applying to a lender. Mortgage brokers assess bank statements on a daily basis so they should be able to give you some guidance regarding how the lender is likely to view them.

What Your Bank Statements Must Show

So, what do mortgage lenders look at on bank statements? They will check that your salary is being paid regularly and matches the payment date and net figure shown on your payslips. They will also review your regular commitments such as rent, loans, childcare, credit card payments, etc.

It’s important to be honest with lenders about your financial commitments as they will be able to see your credit information when they run a credit check at the Agreement in Principle stage of the process. Your bank statement information should accurately align with your credit report.

A mortgage declined due to bank statements is usually linked to affordability concerns or undisclosed commitments, as opposed to discretionary spending.

What Documents Do Lenders Require for Bonuses, Overtime, or Commission Income?

If a portion of your income comes from bonuses or other variable pay, you may be wondering if mortgage lenders take bonuses into account for your affordability. The answer is yes in many cases. But they usually need evidence that the income is regular and sustainable.

For example when assessing bonuses, overtime or commission that is paid monthly, those payments will normally need to show on at least two of your latest three payslips. Lenders may then average those figures and extrapolate them over a year before accounting for the income in your mortgage affordability.

Regarding overtime, applicants normally ask: “does overtime count towards the mortgage?” or “can I use overtime for a mortgage?”. Most lenders can consider overtime if it has been paid consistently and over a set time frame – typically three to six months.

The income proof required for bonuses and commission can be different depending on their nature and when they are paid. For example, some bonuses and commissions are paid on a fortnightly, quarterly, half-yearly or even yearly basis. If these payments are sporadic across a given year, a mortgage lender may request your most recent P60 documents to see your annual gross income over recent years. If the income is consistent and expected to continue, some lenders may use 100% of it in affordability calculations.

Here’s a summary of the documentation typically requested by mortgage lenders for bonuses, overtime and commission:

What Proof of Income Do I Need if I’m Self-Employed?

If you work for yourself, you should know that the proof of income for self employed applicants differs from PAYE employees.

Rather than requesting payslips or invoices, lenders will normally ask for your latest annual tax documentation that you have declared to HMRC.

To provide acceptable self employed proof of income, lenders will typically request your latest tax calculations and tax year overviews over the past couple of years.

A tax calculation confirms your taxable income. The document highlights all income that you have declared to HMRC, whether that be from dividends, employment, pensions, interest, land and property, etc. It then shows the calculation of your income tax payable from those income sources after deducting your personal tax allowance.

A tax year overview confirms how much tax you have paid or still owe to HMRC. If a tax amount is still outstanding, this will be highlighted on your tax year overview. Mortgage lenders need confirmation from your tax year overview that you are up to date with your tax payments to HMRC. Therefore, if you have a tax payment outstanding, you will need to settle the amount before you can use the corresponding income for your mortgage application.

Many company owners ask: “how many payslips are requested for a self-employed mortgage?”. It is a common misconception that company owners can use their payslips for mortgage affordability. However, in most cases if you own more than 25% of a company’s ordinary shares, your payslips from the company will be disregarded by mortgage lenders. Instead, the lenders will still request your tax calculations and tax year overviews because the calculation will showcase your salary and dividends.

In some cases, mortgage lenders can use the retained profits in your company towards your mortgage affordability. This can be advantageous for directors who do not wish to withdraw dividends.

You should consider consulting with a regulated whole-of-market mortgage broker, like Boon Brokers, to clarify how your self-employed income will be treated by mortgage lenders.

How Many Years of SA302s Do I Need for a Mortgage?

A common question is “how many years of SA302 are needed for a mortgage?”. Most lenders ask for the latest two years of SA302s, which are now known as tax calculations, along with corresponding tax year overviews from HMRC.

Some lenders may request just one year of SA302s/tax calculations. However, this is normally only the case if the business has only traded for a year. If the business has traded for multiple years, expect the lender to request the latest two years of tax documentation.

If you are unsure how to get your SA302 for a mortgage, it’s best to speak with a qualified accountant or contact HMRC directly.

What Proof of Rental Income Do I Need for a Mortgage?

If you own a buy-to-let property, you may be wondering if you can use the rental income to qualify for a mortgage. In many cases, the answer is yes. Like any other self-employed income, lenders will need to see that the income is consistent and properly declared to HMRC.

In most cases, lenders will request your latest two years of tax calculations and tax year overviews. The property income will need to show on your latest two years of tax calculations for most lenders to consider the income for your application. Some lenders may also request the signed tenancy agreement to learn more about the rental profile of the property.

If you are planning to sell the rental property in the near future, you must inform your mortgage lender. Even mortgage lenders who accept rental income will still disregard income from properties that will be sold shortly. Otherwise, you may sign for a mortgage that you are unable to afford following a reduction to your income.

Can I Use Pension or Benefit Income for a Mortgage?

If you are retired or receiving support payments, you may be wondering, “can you get a mortgage on a pension?”. Lenders can consider pension income, provided it is regular and sustainable, and subject to their affordability assessment.

Mortgage underwriters often ask for pension statements or award letters confirming the income amount and payment frequency.

It’s common for pension earners to ask if they can use a pension as security for a mortgage. Even though the logic behind this question is sensible, as some pensioners have large pension pots that may exceed the mortgage balance itself, mortgage lenders will only use the property as security. Instead, lenders will use your pension income for affordability purposes to support your ongoing mortgage payments.

When it comes to support from the state, do benefits count as income for a mortgage? In recent years, some lenders have broadened their criteria to include benefits in affordability assessments. Certain long-term benefits may be considered, depending on lender criteria. These include universal credit, disability benefits, carer’s allowance and children-related benefits. Even though children-related income may cease before your mortgage term expires, most lenders still count child benefit and child tax credits towards your mortgage application.

What Other Documents Can I Show as Proof of Income?

There are numerous other documents that may be requested by mortgage lenders to verify your income. More examples include:

Does My Income Need to be Stable to Get Approved for a Mortgage?

In most cases, yes. Mortgage lenders naturally prefer income that is consistent and is likely to continue in the future. Because mortgages can last for decades, the lender needs reassurance that you can continue to meet your monthly mortgage obligations in the long-term.

That said, your income does not need to be identical every month. Lenders understand that incomes can be complex so they offer a range of income criteria to account for many different circumstances. For example, NHS mortgage income may seem complicated due to the different labels for their overtime and shift allowances. However, as the NHS is a large employer in the UK, many lenders have accommodated NHS staff with their income proof criteria.

Your mortgage approval will not be based on just your income. Lenders will also consider your financial commitments, spending habits and future plans.

How a Mortgage Broker Can Help With Your Mortgage Application

Understanding the documents needed for a mortgage application can feel overwhelming, especially if you have not experienced the mortgage underwriting process before or have income from multiple sources.

A regulated whole-of-market mortgage broker will have an expert knowledge of the income proof criteria from lenders. They can explain exactly what lenders are likely to request and help you prepare the paperwork before an application. If you have complex income, working with a broker can be invaluable, as you may need to navigate additional requirements before you can use your income for a mortgage application.

Whether you are employed, self-employed, or unemployed on benefits, mortgage brokers can help prepare your income documents to help ensure your application is prepared correctly before submission. Speak with a broker from Boon Brokers today to book a free consultation.

It’s important to remember that your home may be repossessed if you do not keep up repayments on your mortgage.