How to Prove Your Income for a Mortgage Application
Struggling to prove your income for a mortgage application? Our expert guide can tell you exactly what you need to do.
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One of the most important aspects of getting a mortgage is affordability. To show that you can afford to repay a mortgage, you’ll need to show proof of income.
If you are in a PAYE role, this can be simple enough, but what if you are self-employed or a contractor? Proof of earnings can be more difficult, as lenders have different criteria. In this article, you can find out everything you need to know about proving your income to a mortgage provider.
The following topics are covered below...
How to prove your income to a mortgage lender
Mortgage companies verify income in a number of ways and you will need to provide them with the following, depending on how you trade…
1. Payslips.
If you are a PAYE employee, then presenting your payslips is the easiest way to verify income with a mortgage provider.
Generally speaking, mortgage lenders request at least three months of payslips, although there are some lenders who may accept less.
2. Accounts for self-employed
If you are self-employed, then you will usually need to show your fully signed-off company accounts, a qualified accountant to sign off on those accounts, and your SA302 or tax year overview, which needs to be taken from the HMRC website.
Most mortgage providers would want to see accounts going back at least three years. All lenders are different, though, so the right mortgage broker might be able to help you find a lender who accepts 1-2 years’ accounts as income proof.
3. An employment/service contract
If you earn a living as a contractor, then some lenders will want to see a signed contract, if payslips are not available.
Some lenders may want to see a contract if you are looking to apply for a mortgage, and you’ve just started a new job.
4. Bank statements
It is common for lenders to ask to see bank statements. This helps them build up a picture of your financial situation and spending habits.
Regular deposits into a savings account will help put your application in a good light.
5. Rental income
Rental income from a buy-to-let property can be used to boost your overall income.
Along with bank statements, your letting agent will be able to provide the required information to the lender.
If you are looking to purchase a buy-to-let property, you will need to convince the mortgage provider that your investment is viable. Most lenders would require the rental income to cover the mortgage payments by 125-130%.
A rental income forecast from an Association of Residential Lettings Agents (ARLA) approved agent should be acceptable to most mortgage providers.
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How to provide proof of your mortgage deposit
The UK has very strict anti-money laundering legislation in place, so you will need to prove that your deposit came from a legitimate source.
This information is an essential part of your mortgage application and it’s more than likely your application will be rejected if you are unable to prove where your deposit came from, or it originated from a source that is not approved.
Legitimate deposit sources include –
- Lender approved sources:
These may vary from lender to lender, so do a little research first. - Personal savings:
This is a big plus with lenders, as it shows you are financially responsible and unlikely to pose a credit risk. Your bank statements will be more than enough to show you have saved for your deposit. - Sale of another property you own:
As long as the funds are deposited into your bank account on completion, there shouldn’t be any problems using the cash as a deposit. A completed sales contract on the property should suffice. - Capital from another property:
If you have enough equity, then you may be able to raise money for a deposit through a second mortgage. All you have to do is convince your mortgage provider that you are able to meet the higher repayments on a larger mortgage. A copy of your mortgage agreement should put the lender’s mind at ease.
- An inheritance:
You may have to provide a letter from the estate executor, along with a bank statement showing the funds are in your account. But generally, mortgage providers are usually happy to accept an inheritance as a deposit. - Insurance pay-out:
This may come from an injury, life insurance policy or similar. Either way, most lenders find this an acceptable source of a deposit. A letter from the insurance company stating the amount and circumstances of the payout will be acceptable to most mortgage providers. - ‘Gifted’ deposits from parents:
Gifted deposits are usually provided by the applicant’s parents. But they have to be aware that the ‘gift’ is not required to be paid back and that they will not own a share of the property. Your lender will probably ask for documents signed by both parties, their relationship to you, how much they are gifting and confirmation that there is no expectation that it will ever be repaid.
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40% of our customers had been declined elsewhere before coming to us. The brokers we work with will be able to assess your circumstances and then identify the right lender for you instead of going direct.
Non-standard deposits
There are a number of other sources for a deposit, but these are usually not accepted by the majority of lenders
Winnings from gambling. Unless it’s a large lotto win, lenders are usually nervous about accepting it as a deposit. If you’re a professional gambler, then you would need to speak to a broker who specialises in that area.
Gifted deposits from friends. Most lenders see gifted deposits from friends as a much higher risk. If friends fall out, they may demand their money back. The same applies to gifted deposits from distant relatives.
Overseas savings. As it can be difficult to trace the origin of the funds and prove there is no risk of money laundering, most lenders will be reluctant to approve a mortgage application.
Personal loans. Essentially, you are trying to borrow money, to borrow money. This rarely sits well with lenders, although there may be a few who might consider it as the source of a deposit.
The good news is that there are a few mortgage providers who may consider some of the sources of deposits mentioned above, but you will need to speak with a specialist mortgage broker who knows which lenders may consider accepting one or more of these as an acceptable deposit source.
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What if you don’t have enough proof of income?
You will need to seek professional advice. Mortgage providers need proof that you are able to make repayments on a mortgage, but proof of income can be difficult for freelancers or those recently self-employed.
The main problem is that most lenders will require accounts going back at least three years, although some may consider 12 months of accounts.
Your best option if is to speak to a specialist broker. They will be able to 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?
Not for a residential property that you plan to live in.
However, some lenders in Europe still offer ‘self-certification’ mortgages, but you need to be aware that they can come with considerable risks.
In fact, the Financial Conduct Authority (FCA) has released an official statement warning against these overseas sourced self-certification mortgages.
The main dangers of applying for a self-cert mortgage with an overseas lender can include…
- The lender may be quicker to repossess your home if you default on payments
- Contacting your lender to discuss problems could be difficult
- You may be subject to exorbitant fees and charges
- The Financial Ombudsman cannot help if you have any complaints
- You will be unable to claim compensation from your mortgage broker if things go wrong
Get matched with an expert mortgage advisor
If you’re having difficulty proving your source of income, or are unsure if you would qualify for a mortgage because you are self-employed or get your income from various sources, then you really need to speak with an expert mortgage advisor or broker.
It’s important to find one that specialises in the sort of mortgage you are looking for, and one who can help you with proof of income.
Whether you are PAYE, self-employed, freelance or a contractor there is an advisor who is an expert in that area and will provide advice that suits your own individual financial circumstances. We offer a free, broker-matching service that will take your needs and circumstances into account to pair you with your ideal mortgage advisor.
Call 0808 189 0463 or make an enquiry and we’ll set up a free, no-obligation chat between you and them today.
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Pete Mugleston
Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
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