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A mortgage is a big financial commitment, so it is important that your lender is aware of your income to check you can afford your mortgage repayments.
Since the financial crash, lenders have been cautious about the information they will accept from a borrower. To get a mortgage, you must prove your income will more than cover your repayments and other outgoings. Therefore, lenders require evidence that your earnings are stable and regular.
To ensure this information is accurate, most lenders carry out credit checks and request bank statements and payslips. But if your income is non-standard, it can be more complex. Read on to find out more about income verification...
How do mortgage lenders verify income?
Mortgage lenders require you to provide proof of income so that they can verify your details are correct. Employees with continuous employment, contract workers, and self-employed people will all need to provide evidence to confirm income when they apply for a mortgage
Depending on the type of income and the mortgage provider, you may be asked to show payslips, tax year overviews and tax calculations, bank statements, a tax bill, or maybe your current contract. This information will be used along with other financial details to assess how much the lender is willing to let you borrow on a mortgage.
Many factors could affect how much a lender is willing to offer you, including how much they value the property, debt payments, your credit record and affordability.
How to prove your income
To make sure you can provide proof of your income, it is essential to keep the following documentation. Remember, some lenders will ask for additional information depending on your circumstances - for example, if you are self-employed.
Some lenders will check your bank statements provided with your mortgage application line-by-line to check for irregular transactions, for example, evidence of spending on gambling websites.
Depending on the lenders and your circumstances they may ask for:
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Three months of payslips
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Two years of P60s
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Recent bank account statements for at least the last three months
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Company accounts
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If you have just started a job, lenders may ask to see your employment contract
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Tax year overview / Self-assessment tax return (if you're self-employed)
Evidence needed for non-standard income sources
The table below shows what proof you will typically need for more complex types of income, such as rental proceeds, bonus, commission and dividends.
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Type of income |
Proof required |
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|
|
Contract or hourly wage |
At least 3 month’s payslips and a copy of your employment contract. |
|
|
|
Pension income |
Pension statements and bank statements (usually 1 to 12 months’ worth). |
|
|
|
Bonus, overtime and commission |
3 to 24 months’ payslips, letter of confirmation from employer, bank statements, latest two P60s. |
|
|
|
Rental income |
Lease or tenancy agreement, self-assessment returns, bank statements. |
|
|
|
Investment income |
Investment statements, self-assessment returns, bank statements, contracts. |
|
|
|
Overseas income |
Several payslips and corresponding bank statements, tax return (if applicable), confirmation letter of income from employer. |
|
|
|
Benefits |
Award letters, bank statements, court orders, payment receipts, benefit statements, and any other relevant documents. |
|
|
What does a mortgage lender look for on bank statements?
When banks check your personal account as part of a mortgage application for income proof, they want to see how much income you have and that it matches what you have stated on your application. They will also look for any unusual transactions or charges you have made.
In the days of online banking, providing proof of income is relatively straightforward, as you can download your bank statements straight to your phone, tablet or computer in most cases.
Get mortgage advice tailored to your income type
How many payslips should you provide?
This will vary depending on the lender. Generally, lenders will be looking for three months of payslips and two years of P60 statements, although you may be able to find a lender who will accept a shorter period of time.
Can you lie about income on a mortgage application?
It is important to be completely honest when filling out a mortgage application.
The last thing you want is to be approved for a mortgage, knowing you won't have enough income to cover your monthly payments and then fail to make the repayments. This could lead at best to repossession of your property and at worst bankruptcy.
If you lie on your application, it is more than likely you will be caught out at some stage. This could mean the loss of your home and homelessness, not to mention any legal ramifications that exist if the lenders think there has been evidence of mortgage fraud.
What happens if you can't provide evidence of income?
If you can't provide the lender with evidence of your income, then chances are they won't approve your mortgage or they will set high requirements to make it impossible for you to qualify.
This is because they need evidence that you can afford your mortgage repayments and it would be too big a risk if they couldn't see any way of doing this.
If this is your situation, it may be possible for you to get a mortgage with the help of a guarantor, who will vouch for your income and will be legally obliged to step in if you are unable to make mortgage repayments.
It’s also important to note that some lenders require less income proof than others, so speak to a broker if you’re concerned about the amount of documents you're able to provide. They may be able to find a mortgage provider who is flexible with their requirements.
Proof of income for the self-employed
Many people who are self-employed or limited company directors can struggle to get a mortgage, especially if they are new to self-employment. Annual tax returns are an essential part of proving income for a self-employed person. Most lenders will want to see a minimum of two years of trading, ideally with a stable and increasing income.
When applying for a mortgage as a self-employed individual, you may find it helpful to have an accountant prepare your tax returns.
Speak to a broker if you have been trading for less than two years, as they may be able to find you a flexible lender who will accept just 12 months’ accounts as income proof.
Proof of income for contractors
For contractors, mortgage providers will want to see a copy of your employment contract and ideally a solid track record of continued employment over time.
If your industry is seasonal or your work history is patchy, this could indicate to mortgage lenders that your income is not as stable. They'll want to see that you are able to afford your mortgage repayments both now and in the future.
What is verifiable income for a mortgage?
What is classed as verifiable income will depend on the individual mortgage lender.
The most acceptable income is one gained through regular, long term employment, with a stable salary. For people with non-standard incomes, for example, if you work mainly on a commission basis, are self-employed or own a business, income verification is less straightforward.
In cases where a mortgage lender is reliant on non-standard income alone to validate a mortgage, they will likely ask for more information. For example, high earners who don't have a traditional salary or those on benefits with a low household income could be asked to provide additional evidence. If you are self-employed and earn an irregular income, it is even more important to be able to show stability.
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FAQs
Following the financial crash (credit crunch), you can no longer self-certify your income, but you may find that some buy-to-let mortgages are marketed as self-certified.
This means that these mortgages do not require your accountant to calculate your monthly income and just sign a self-declaration and pay a higher premium than for an equivalent standard mortgage.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.