A Guide to Income Types & Mortgages

If you’re planning to buy a property, it’s well worth understanding how mortgage lenders assess various types of income as it can significantly impact your application and the amount you’re able to borrow.

Here we’ll cover how lenders treat different incomes - whether you’re an employee, self-employed, or relying on additional funds. We’ll also explain what proof you need and tips to maximise your mortgage affordability.

What types of income can you use for a UK mortgage?

types of benefits or tax credits.Mortgage lenders tend to categorise income into two broad streams, ‘standard’ and ‘non-standard’, with the former being more straightforward for them to process.

Standard income types

Here’s a brief over of the main types of standard income that lenders accept.

Salaried employee

If you’re a PAYE employee with a fixed annual salary, this is probably the most common and simplest form of income for lenders to assess. Your income will likely be steady and predictable.

Usually, how much you can borrow will be based on a multiple of your gross salary (pay before tax and deductions), with 4 to 4.5 times your salary being the average.

Hourly pay

Organising a mortgage can be relatively straightforward if you’re a PAYE employee and paid hourly (rather than a yearly salary).

However, the type of contract you’re on (full-time, part-time, temporary, freelance, zero-hours, maternity cover etc.) can make a difference to how much you can borrow and your ability to get a top mortgage deal.

Self-employed

It’s more complex to get a mortgage if you’re self-employed, but it’s still a relatively common type of income used for borrowing. How much you can borrow is usually based on a multiple of your yearly net profit (income after tax, costs, and other deductions).

Still, the more unpredictable nature of self-employment means that more details are factored into the assessment. It can also make a difference whether you’re a sole trader, partner, limited company, director, or any other type of business owner.

Pension income

Some forms of retirement income are straightforward and easy to assess, especially if you have a drawdown pension or a guaranteed level of consistent income from something like a defined benefit (DB) pension.

However, things get a little more complex if your pension income is inconsistent and not guaranteed, like with a defined contribution (DC) pension. Also, only some lenders will accept state pension payments, and some require that you get a specific pensioner mortgage product if you are retired.

Non-standard income types

Here are examples of income sources that can be more complex for mortgage lenders to assess:

Supplemental income

If you happen to earn bonuses, commission, or overtime - it’s important to understand that lenders treat this sort of irregular income differently.

Because it can be unpredictable, some lenders won’t include it whatsoever, some will accept a particular percentage (e.g. 50% or 75%), and others will be willing to include it all.

Investments

This involves earning profit from investments, perhaps in interest, dividends, asset appreciation, or any other type of return. It could also be rental income you earn from an investment property.

Investment income is more complex for mortgage lenders to evaluate. Most lenders prefer more predictable investments like property or fixed-income assets (perhaps bonds or gilts) compared to more volatile investments like stocks, cryptocurrency, or alternative assets.

Overseas income and payments

If part or all of your income comes from overseas, each lender will view this from varying perspectives depending on their risk appetite and flexibility.

Some lenders aren’t willing to accept any overseas income and might decline a mortgage application. However, some will allow it if it’s from a specified country or currency. And others may take a haircut (perhaps 10% or 20%) to account for currency fluctuations.

Benefits

Certain lenders will permit things like disability benefits, universal credit, carers allowance pension credit, Personal Independence Payments (PIP), child maintenance payments, and other benefits as part of your income calculations.

Some lenders will view these as reliable, especially if you have a long-term entitlement. However, each lender will have rules about the benefits they will or won’t accept as legitimate income, and many won’t accept particular.

How mortgage lenders assess income

Each lender will evaluate various streams of income in different ways. Some will be more willing than others to take the time to assess complex or non-standard income.

Although lenders may have an individual process, here’s a quick overview of the main methods used to assess your income when calculating mortgage affordability:

• Salary multiples: Lenders' main method is a salary multiple based on your annual income (before tax and deductions). Although 4.5 times is the average, some lenders stretch this higher for certain professions and applicants. If you’re paid hourly or a contractor, lenders might use an annualised version of your pay.
• Reliability: Typically, lenders want income to be as steady and reliable as possible. This is why salaried employees often have the easiest time with a mortgage application. For more unpredictable income, the treatment will vary based on a lender’s specific criteria.
• Net profit: If you’re using self-employed or investment income, the net profit is key. For example, if you generate plenty of revenue but have high costs, mortgage lenders won’t view this favourably. This is why most lenders want to see long-term proof of profit and multiple years’ of accounts or investment statements. Sometimes, 1 year of accounts is still possible.
• Joint applicants: It’s important to remember that lenders will combine the income of all joint applicants listed on the mortgage, so this can provide a boost. There are also creative ways to use extra income with products like guarantor mortgages or joint borrower, sole proprietor (JBSP) mortgages.

How to provide proof of income for a mortgage

Although this can vary between lenders (especially if a lender specialises in a specific type of income), here are some general guidelines for the kinds of proof you’ll need for getting a mortgage with various sources of income:

You can read more on this topic in our guide to how lenders verify income.

How a broker can help boost your affordability

No matter what type of income you receive, when applying for a mortgage, it’s well worth using an experienced broker. This will simplify the process, allow you to stretch your income further, and ensure you’re getting the best deal possible.

Here are some of the key ways an expert broker can help with your mortgage:

• Complex income: If you have an irregular, complex, or non-standard income source - a skilled adviser can help you navigate the market and introduce you to the lenders that will treat your specific type of income most favourably.

• Maximising income: Some lenders won’t let you use extra income or only allow a certain percentage to be used in the calculations. A mortgage advisor can introduce you to lenders that will allow 100% of your specific type of extra income, which can make a big difference to your mortgage affordability.

• Higher multiples: Although 4.5 times salary is the average, some lenders actually use lower multiples. Others may allow higher multiples, sometimes 5 times or 6 times salary for certain professions and sources of income. A skilful broker can help you discover the right option for your situation.

If you want to speak to one of our experienced brokers who specialises in mortgages for all income types, you can get started here with a free, no obligation chat:

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Do you need an income to get a buy-to-let mortgage?

No, this isn’t always necessary. Potential rental income is more important for a buy-to-let (BTL) mortgage. Most lenders look for between 125% and 145% of the mortgage payments. If you have a significant deposit and a low loan-to-value (LTV) ratio, this can also help.

However, some mainstream lenders may require that you have a minimum annual income (usually around £25,000). So it’s well worth getting a broker to introduce you to the right lender for your specific BTL property and individual source of income.

Why choose Teito for your mortgage?

Every type of income is unique, and certain sources of income require more attention than others during the mortgage application. This often means approaching a more flexible lender and getting a skilled broker to assist you in getting the best deal.

Our brokers have plenty of experience securing mortgages for all income types, whether that’s a simple PAYE salary or a more complex pay structure needing expert support and an introduction to a specialist lender.

Here are just some of the reasons people all over the UK choose us for their mortgage needs covering all income types:

• Our brokers specialise in complex and non-standard incomes

• We can introduce you to flexible lenders with excellent rates

• Your first chat is free with no obligation to proceed

• We have a 5-star rating on leading review sites

Ready to take advantage of a free, no-obligation chat with a broker who specialises in different income types? Get started here.