What Proof Of Income Is Needed For A Mortgage?

One of the key factors that will determine whether you will have a mortgage application approved and how much you will be able to borrow, is your income. Mortgage lenders calculate mortgage affordability based largely around your income and outgoing finances. They will request to see proof of your income and additional documents before approving your mortgage. 

This article explains all of the information and documents you are likely to be asked for when you submit a mortgage application and what you can do to improve your chances of having your mortgage application approved.

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What do you need to apply for a mortgage?

Mortgage lenders will request a set of specific documents as part of your mortgage application process. It helps to speed the application process up if you have all of the required documents ready to provide to the lender.

While the full set of documents that are required can vary from one lender to another, generally these are the documents you will be required to provide:

Bank statements and payslips

Many lenders will request you to send between 3-6 of your most recent payslips. You may be required to send the originals, or electronic copies may be accepted. The number of payslips required is likely to depend on how often you get paid. So, if you get paid weekly, for example, you will need to provide more payslips than if you are paid monthly.

Even though many lenders require at least 3 months of payslips as proof of employed income, there are some lenders that only require your most recent payslip or even a signed employment contract. If you do not yet have 3 months of payslips from your new job, you should contact a broker, such as Boon Brokers, to find a lender that can accept your contract or most recent payslip as proof of income.

Likewise, your most recent bank statements for the last 3-6 months will usually be required too. If you are self-employed, the lender may ask for your business accounts.

If you are unable to find your original bank statements, you can order more from your bank and your employer should also be able to provide you with replacement payslips on request. 

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

If you are relying on any other sources of income for your application, then you must also show the appropriate proof of this in payslips or bank transactions.

Some lenders will also be happy to consider certain types of benefits such as:

If you receive any types of benefits, you should check with the mortgage lender you are applying with to see if they take benefits into account and which ones are accepted. 

Some lenders will be more flexible when it comes to accepting benefits as proof of income, so speaking to a broker can help you to find the ones that suit your type of income.

Photo ID

You will need to provide some form of photo ID, which enables the lender to comply with money laundering regulations and also to protect 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

The lender will also require documents that provide evidence of your address. Some lenders will require at least two of the following:

Proof of income

Your proof of income is an important piece of evidence to provide to the lender and the following items are usually acceptable:

• Two of your most recent P60 documents from the past two years.
• Payslips from the past three months or more. 
• If you own a business, proving your income is more difficult.

Getting a mortgage with a new job or your own business

If you are unable to provide the required number of payslips, either because you have recently started a new job, or you have set up your own business, there are lenders who will accept other types of proof of income. 

You may find that it is better to work with a broker who specialises in mortgages for self-employed workers, or can help with any other reason that you are unable to provide payslips for your application. 

Outgoing finances

When the lender is calculating how much you can afford to pay for your mortgage, they will need to check all of the details of your outgoing finances. This incorporates any regular payments that you are making, as well as other spending. 

Since the Mortgage Market Review in 2014, mortgage lenders in the UK must have much more accurate methods of calculating affordability, taking all outgoings into account. 

Previously, income was the main factor in approving mortgage applications and determining loan amount calculations, which resulted in a high number of mortgage holders missing payments. This is why the review took place, to ensure applicants could truly afford the mortgages they were applying for when all other relevant factors are considered.

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. Expenditure such as socialising, buying clothes and other outgoings will be reviewed to determine how much you can afford to pay for your mortgage 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

When you are applying for a mortgage, the lender will request your employer’s contact details. They may contact them to confirm that you are currently employed by them, and your employer may also be asked to verify your salary and any bonuses or allowances that have been claimed on the application.

Any discrepancies could lead to the application being declined or the lender could reduce the amount that they are prepared to lend.

The mortgage lender will usually also ask for confirmation regarding:

How to improve the likelihood of having your mortgage approved

If you have poor credit, then it is better to try and improve your more recent credit history by making your payments on time and delaying the application for your mortgage. 

Your income plays a huge factor in how much you will be allowed to borrow, so if you are due a salary increase in the near future, it would be better to wait until the increase is applied and you have payslip evidence for the required number of months.

Saving up a larger deposit will also significantly help you to get your mortgage approved and it can also reduce the interest rate on your mortgage. Mortgage interest rates are largely based on your LTV (loan-to-value), so if you have a deposit of 20%, you can generally get a better deal than if you had a 10% deposit.

Your outgoings will also be scrutinised by the lender you are applying with, so try to reduce unnecessary spend and avoid what could be considered as high-risk transactions such as gambling, from showing on bank statements.

Conclusion

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.