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.
- What do you need to apply for a mortgage?
- Bank statements and payslips
- What your payslip must show
- What your bank statements must show
- Other sources of income
- Photo ID
- Proof of address
- Proof of income
- Getting a mortgage with a new job or your own business
- Outgoing finances
- Proof of employment
- Can I still get denied a mortgage if I provide all of the above information?
- How to improve the likelihood of having your mortgage approved
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):
- The same employee’s name as the name on your mortgage application.
- Your net pay.
- Pay date and tax period.
- Any bonuses, overtime or commission
- The address that matches your application (if your address is included).
What your bank statements must show (as required from the majority of lenders):
- A full month’s statement for however many months are requested from the lender.
- Bank account and sort code numbers.
- A running balance.
- The logo of the bank/building society.
- Name of applicant(s) with full address
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:
- Child tax credit
- Working tax credit
- Child benefit
- Disability living allowance
- Pension credit
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.
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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:
- Latest utility bill.
- Bank or building society statements (less than three months old).
- Latest council tax bill.
- Your latest HMRC tax demand.
- Photocard driving licence or an older format driving licence.
- Council tax demand letter (the most recent).
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.
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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.
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:
- Loan repayment plans (including car loans, credit cards, bank loans, overdraft payments etc.)
- Any insurance policies such as life insurance, car insurance, home insurance etc.
- Utility bills.
- Food/grocery bills.
- Any other type of debts you are repaying.
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.
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 long you have been employed by them.
- What your job position/role is at their company.
- Job security including factors such as whether you are on a short-term contract or are on a probationary period.
- If you have worked for the employer for under two years, the lender may also request information from your previous employer too.
Can I still get denied a mortgage if I provide all of the above information?
Providing all of the required documents will help you to get a mortgage approval but the details provided in the documents you give to your mortgage lender could result in your mortgage getting declined.
Mortgage applications can be declined for a wide range of reasons, such as:
The details you provided in the application are not matched by the proof
If you state a certain amount of income and the proof you provide does not match the amount you claimed, your mortgage could be declined, or the loan amount could be reduced.
Sometimes, details such as bonuses that you regularly receive but are not guaranteed in your contract can be seen as a lower income because the lender wants to see guaranteed income.
One of the main considerations when lenders are calculating affordability is your current outstanding debt. If you have a large amount of debt, even if you are repaying loans consistently on time, it can still impact your application.
If you have a large amount of outstanding debt, lenders will see you as a bigger risk than if you had little or no outstanding debt. If you have any store cards, credit cards, car loans or bank loans, these will be factored into your affordability.
Therefore, in the time leading up to submitting your mortgage application, if you can reduce your outstanding debt, you are more likely to have your mortgage application approved.
Having outstanding debt will not automatically mean that your mortgage application will be declined. If your income sufficiently covers your debt repayments, bills, other outgoings and your new mortgage, there is a good chance your application will be approved.
Credit rating/financial history
One of the other significant factors in your mortgage application decision is your credit rating and financial history. If you have any missed payments, CCJs or bankruptcy on your credit file, this will affect your application.
A few missed payments may not necessarily result in a declined application but may mean that you need to go with a mortgage lender with a higher interest rate, as you will be seen as a higher risk borrower.
Recent adverse credit will have a larger bearing than historical adverse credit. For example, if you had a missed payment over a year ago and have made every payment on time since then, it will be seen as lower risk than several recent missed payments.
It is a good idea to check your current credit information using credit reference agencies such as Equifax, Experian or TransUnion. These companies are the ones that supply credit history information to mortgage lenders, so you will get a good idea of whether your credit history will affect a mortgage application.
If there are any adverse credit issues, you could delay submitting your mortgage application, to give you some extra time to improve your credit rating, to show that you have been making consistent, regular repayments.
Another factor that could result in a declined mortgage application is if you are financially associated to someone who has CCJs, bankruptcy or missed payments on their credit history. To be financially associated to somebody, you will usually have a financial connection such as a joint account, loan or other type of finance.
We’ve created a separate blog post detailing many other reasons why your mortgage application may be denied, so for further details please refer to it.
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.
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.