What Proof Of Income Is Needed For A Mortgage?

When it comes to applying for a mortgage, one of the key factors that will influence an application being approved is your proof of income. Mortgage lenders assess your application by calculating your mortgage affordability, of which is largely based around your financial income and outgoings. As part of this process, they will typically request some form of ‘proof of income’ alongside any additional documents, before approving your application.

If you’re wondering exactly “What counts as proof of income?” or even “What proof of income is needed for someone who is self-employed?” – we’re here to help. In this guide, we explore all the essential information and documents you’re likely to need to secure your mortgage application approval.  

Short on time? Watch this helpful video below:

What Do You Need to Apply for a Mortgage?

Knowing exactly what you need to apply for a mortgage can speed up the process considerably. Typically, lenders will request to see a specific set of documentation, and these usually include:

• Proof of income – payslips or tax returns
• Bank statements – typically the last 3 – 6 months
• Proof of funds – finance available for a deposit

When applying for a mortgage online, lenders may ask for digital versions of these documents.

Bank Statements and Payslips

Most lenders will require you to provide between 3-6 of your most recent payslips as part of your mortgage application. Depending on the frequency of your payslips, this number could vary.

There are some lenders who may only require a single most recent payslip or a signed employment contract as proof of employed income. As such, if you have recently started a new job and are looking for a mortgage, then using a whole-of-market broker – such as Boon Brokers – can help you find a lender willing to accept contracts as proof of income for your mortgage application.

In addition to payslips, bank statements for mortgage applications are ordinarily required. If you are self-employed, the lender may also ask for your business accounts.

What Your Payslip Must Show (As Required From the Majority of Lenders)

What Your Bank Statements Must Show (As Required From the Majority of Lenders)

Other Sources of Income, Including Benefits.

If you are reliant on any other sources of income for your mortgage application, then you must provide additional proof of income through payslips or bank statements. Some lenders may also accept certain types of benefits as income, including:

If you’re considering getting a mortgage on benefits, or with added benefit funds, you should check with your lender to see which benefits they accept. Some lenders are more flexible than others when considering a mortgage application on benefits, and so working with a broker can help you find a lender that best suits your financial situation.

Universal Credit, Working Tax Credits and Child Tax Credits

Some lenders will accept Universal Credit, Working Tax Credit, and Child Tax Credit as part of your proof of income. In truth, eligibility for this varies a lot, and so it’s important to check with your lender or broker before completing your application.

Working Tax Credits

There are lenders who will allow Working Tax Credits to be used and count towards your overall mortgage affordability. However, you will still need to provide a recent bank statement or letter of proof to be eligible.

Disability Living Allowance and Personal Independence Payment

Specific lenders may consider Disability Living Allowance (DLA) or Personal Independence Payments (PIP) as proof of income. However, if you rely on these benefits in your affordability mortgage calculations, speak to a broker to find a lender who will accept these additional incomes as part of your mortgage application.

Pension

Retired applicants can still apply for mortgages. As such, your pension income can be used with some lenders to support your mortgage applications. Lenders may request pension statements or bank statements to verify this income.

Photo ID

You will need to provide some form of photo ID. This allows lenders to comply with money laundering regulations and also protects them against fraud.

The types of photo ID that are generally accepted are:

• UK passport or photocard (signed).
• EU photo-card driving licence (full or provisional).
• A national identity card.

Proof of Address

Proof of address for mortgage applications is also required. Lenders will typically require at least two of the following documents:

Proof of Income

Your proof of income is essential in any mortgage application. It helps mortgage lenders assess your overall affordability and will determine if you are eligible for the loan. Generally, lenders will accept the following documents as proof of income for mortgage applications:

• Two of your most recent P60 documents from the past two years.
• Payslips from the past three months or more.

If you are self employed, or own your own business, proving your income can be more difficult. Lenders may request tax returns, business accounts, and additional bank statements to verify your income.

Getting a Mortgage With a New Job or Your Own Business

Starting a new job or setting up your own business can add additional hurdles to securing a mortgage. The simple reason behind this is that you may not have enough payslips or evidence for lenders that definitively acts as proof of income. However, there are lenders who will accept other types of proof of income.

Working with a broker who specialises in mortgages for self-employed workers and new job applicants can help discover lenders that will match your specific circumstances.

Outgoing Finances

When the lender assesses your mortgage affordability, they will review your outgoing finances. This includes any regular outgoing payments and discretionary spending.

Since the Mortgage Market Review in 2014, lenders have adopted much stricter assessment criterias with more accurate methods of calculating affordability that take all outgoings into account. Previously, mortgage approvals were primarily based on income alone which led to many borrowers struggling to make repayments. This new approach ensures applicants can truly afford the mortgages they are applying for, taking a holistic look at their financial standing.

The Types of Outgoing Finances that Lenders Will Request Details of Are:

The lender will review your bank statements to see what the disposable income is each month. Expenditures – this includes socialising, buying clothes and other outgoings – will be reviewed to determine how much you can afford to pay off your mortgage loan, each month.

In the months leading up to your application, you should try to cut down unnecessary spending, so that you are able to show how much you can afford to pay when you do get your mortgage. However, it is important to be realistic about your outgoings, so your spending must be sustainable for the foreseeable future, at least until a point where you are earning more money.

Proof of Employment for a Mortgage

When you apply for a mortgage, lenders will ask for your employer’s contact details to verify your employment status and income. Additionally, they may also ask your employer to confirm your salary, bonuses, and existing allowances that have been listed in your mortgage application.

Any discrepancies found in this information could result in your application being declined, or having a reduction to the loan amount that the lender is willing to provide.

If you are applying for a mortgage without employment, some lenders will consider alternative income sources. These include, investments, pensions, self-employment earnings, and sometimes benefits.

The mortgage lender will usually also ask for confirmation regarding:

How to Improve the Likelihood of Having Your Mortgage Approved

If you’re worried about “how to get a mortgage approved”, then focusing on improving the main factors that lenders will be looking to assess is the best place to start. For example, if your credit score is less than ideal, you could focus on improving your credit history and start making payments frequently and on-time. Managing your outgoing will also increase your favorability amongst lenders. Reducing any unnecessary spending and high-risk transactions can help your bank statements look more reliable to lenders.

If you’re able to save for a larger deposit, then this will also significantly help you get approved for a  mortgage. In addition, this will also reduce the interest rates on your mortgage, as your LTV (loan-to-value) would be much lower when comparing a 20% deposit to a 10% deposit.

Your income is the main contributor that will most likely affect how much you can borrow. As such, if you’re due a pay rise in the near future, it might be better to wait until your new payslips accurately reflect your new financial standing.

How Boon Brokers Can Help With Your Mortgage Application

There are many different factors that are taken into account by mortgage lenders when they are deciding whether to approve a mortgage. By speaking to a mortgage broker such as Boon Brokers, you will be able to get advice on what proof of income is acceptable and how to find the best deals based on your income and other affordability calculation details.

Contact Boon Brokers today for free, whole of market, impartial mortgage advice.