Before a mortgage provider agrees to lend you a hefty sum of money to buy a home, they will carry out extensive checks to ensure your income and affordability is sufficient to cover the repayments of the loan you’re applying for.
When it comes to declaring your income, a written statement detailing your annual salary or monthly take-home won’t cut the mustard; you’ll be required to provide a number of documents as supporting evidence.
This guide explains the different types of income that can be declared, how to prove your earnings to lenders, and what documents you’ll need to prepare to support a mortgage application.
Why is income important for a mortgage application?
Income and affordability is of paramount importance for mortgage providers, because these factors play a key role in determining whether they are willing to consider lending to you in the first place, and how much you are able to borrow.
Most lenders use income multiples as a starting point to dictate lending, with the standard allowance being 3.5 to 4.5 times your annual income. Hypothetically, this means that a borrower earning £30,000 a year may be eligible for a mortgage of between £105,000 and £135,000.
On from here, mortgage providers will assess your affordability by calculating your debt-to-income (DTI) ratio. This is the total sum of your monthly debt payments divided by your monthly earnings plus any other eligible income, multiplied by 100 to get a percentage.
A DTI of 36% or under is generally deemed ‘healthy’, and most lenders are happy to accept borrowers whose DTI falls within this bracket - although each works to their own criteria, and there are additional eligibility checks to get through.
Affordability assessments can be many borrowers’ downfall, so before you apply for a mortgage it’s important to understand what forms of income are considered ‘acceptable’, how much weight they’ll carry, and how to provide lenders with proof.
What proof of earnings do I need to give a mortgage provider?
All lenders work in slightly different ways, so proof of income requirements may vary. Generally speaking though, the evidence you’re asked to provide will depend on the nature of your employment.
Proof of income for employed applicants
Payslips - most lenders request the previous three months’ payslips and two to three years’ P60s.
Evidence of any bonuses, overtime or commission (if not detailed on your payslips).
Employment contract - if you’ve recently started or due to start a new job, lenders who are willing to consider you under these circumstances may request a signed contract.
Proof of income for self-employed applicants
Minimum one year, often two to three years’ certified accounts.
SA302 forms or HMRC tax calculations and tax year overview for the previous two to three financial years.
For contractors: signed copies of any upcoming contracts.
Sometimes an accountant's certificate will be requested.
Proof of income for unemployed applicants
Proof of benefits claim from the relevant benefit office.
Proof of income for all applicants
Bank statements - most lenders will request bank statements for the previous three months (sometimes more) to cross-reference your declared earnings and proof of income with the corresponding bank account.
Which types of income will be considered for a mortgage?
For many people, a pay-as-you-earn (PAYE) salary will be their main or sole source of income, which usually makes for a more straightforward mortgage application. But there are plenty of other forms that could be declared.
The following table details some of the other types of earnings lenders are usually happy to accept as additional forms of income, and how much weight they’re likely to carry (i.e. what percentage of them will be considered) on a mortgage application.
Income type | Percentage (%) income considered |
Basic salary from employment | Usually 100% |
Bonus / commissions / overtime / shift allowance | 0 - 100% |
Net profit / salary & dividends drawings from self-employment | Usually 100% |
Bursary / grant / stipend | 0 - 100% |
Retirement income (pension) | Usually 100% |
Benefit income | 0 - 100% |
Overseas income | 0 - 100% |
Lodger or rental income | 0 - 100% |
Proving basic income from employment
For the majority of employees, proving basic income or salary from employment will be fairly simple as your earnings should be consistent across previous months’ payslips and corresponding bank statements. In most cases, lenders will be happy to accept 100% of your earnings without question.
The possible exceptions could be if you’ve recently started a job and / or are employed on a temporary or trial basis. In these circumstances, it may be advisable for you to wait a couple of months until you have more job security - but depending on your circumstances, there may be lenders out there who are flexible.
Evidence of bonus / commissions / overtime / shift allowance
If you want to declare any extra form of income you receive from your job, you’ll have to be able to demonstrate that these are regular payments, rather than one-offs, if you want them to count towards your income.
This is especially relevant for those who work on a commission basis. It’s common for this type of employee to have a low base salary that's supplemented by commission, which often ends up more than doubling their basic pay.
Those who take on regular overtime will need to prove that the arrangement has been consistent for the past few months, and those who rely on bonuses will need corroborating payslips going back several months, or even years, depending on the frequency of them.
How much weight is given to this type of additional income will completely depend on the lender, and your specific situation. Some may be happy to consider up to 100% in the right circumstances, many cap at 50 or 75%, and others will only account for basic pay.
Proof of self-employment income
Self-employment has risen rapidly in the UK during recent years, and fortunately lenders have become more accepting of self-employed borrowers. As such, many are happy to consider 100% of this type of income for a mortgage.
That being said, you’ll usually need to provide evidence across a longer time period; most lenders request certified accounts and a SA302 for at least the previous financial year, whereas others require a minimum of two or three years’ trading history.
Often, lender requirements will depend on the nature of your self-employment. For example, there may be more stringent conditions for zero-hour contractors or sole traders with clients scattered across different industries. A limited company director on the other hand, may be able to secure a competitive mortgage using 100% of their company's profits and 12 months’ certified accounts.
If you work for yourself, it’s advisable to ask a broker to point you in the direction of lenders who specialise in self-employed mortgages. Those who are familiar with the nature of your job are likely to have more flexible income requirements and terms for someone in your position.
Evidencing bursary, grant and stipend income
Those seeking a mortgage while training or completing a PhD may be receiving financial support towards living costs, which they may wish to declare as income. This can be evidenced through a letter detailing the breakdown of payments from the university or training body.
Lender views on bursaries, grants and stipends vary depending on who you approach. There are some who won’t consider this form of income at all, owing to the fact that these payments will typically only last a few years.
Others recognise that, if you can afford a mortgage before you enter full time employment, the chances are your income will only increase once you qualify. More flexible lenders are often willing to account for 50% of this type of income, and a few may consider 100%.
Proof of retirement income
If you’re hoping to fund a mortgage with your pension, either as a sole or supplementary form of income, most lenders are happy to consider 100% of the amount.
If you receive a state pension, this can be evidenced with an official letter from the Department of Work and Pensions (DWP). If you have a private, or multiple private pensions, you’ll need one from your private pension provider(s), alongside the annual P60s you receive from each of them.
These documents should detail the calculation of your pension and any pension credits you’re entitled to. Lenders may ask for three months’ worth of bank statements alongside this.
Evidencing benefit income
Perhaps surprisingly, many lenders are happy to accept benefits as a form of mortgage income. How much weight they will carry will depend on the provider, as well as the circumstances surrounding your claim.
A proof of benefits claim (sometimes known as a Universal Credit award letter) can be obtained from the relevant benefit office, and should detail all or some of the following information:
The rates of benefit you get and payment dates.
Your last fit note.
Your letter of entitlement to benefit (if within the last 5 years).
Any evidence used in a dispute or investigation.
If you’re set to receive benefits on an ongoing basis, for example those with a permanent disability, lenders are more likely to accept and consider a greater percentage of this as income.
If your circumstances are likely to change in the future, i.e. you’re claiming child tax credits until the kids are old enough to go to school, or Universal Credit while you look for a new job, they're likely to carry less weight, or may not be accepted at all.
Proof of overseas income
If you’re hoping to secure a mortgage with overseas earnings as your main form of income, it’s worth approaching a specialist lender. This is because there are a plethora of variables affecting the viability of overseas earnings, and therefore how much weight they’ll carry and how to evidence them.
Influencing factors include the nature of your work (employed / self-employed basis), length of time in employment, where the company is registered and trading, the type and stability of the sector, what currency you’re paid in, where the tax is paid and the bank you’re paid into.
Many mainstream providers can shy away where foreign income is concerned, but those that specialise in the niche may be happy to consider 100% of the earnings as income if the circumstances are right.
Evidence of lodger or rental income
If you’re renting out a room or area of your primary home through Airbnb or a government scheme such as Rent a Room, some lenders may allow this to be declared as income towards a mortgage.
How much weight it will carry will depend on the lender and your letting arrangements - for example, income from a long-term lodger is likely to be viewed differently than seasonal or ad-hoc holiday lets.
A documented history of your lodger or rental income will need to be provided to your lenders as evidence, which can be obtained from the government website, or via Airbnb, depending on which type of scheme you’re using.
If you’re a landlord of a different property on the other hand, it’s unlikely that lenders will accept this form of additional income. Since rental income is used to determine buy-to-let eligibility in the first place, it makes sense that it wouldn't be counted twice.
Is proof of income needed for a buy-to-let mortgage?
As we’ve touched on, most UK mortgage providers assess buy-to-let (BTL) mortgage eligibility using the borrower’s estimated rental income, rather than personal earnings.
That being said, some also have minimum income requirements - especially for first-time investors that present added risk. If a lender asks for proof of personal income, this should be evidenced in the same way you would for a residential agreement.
If you’re a professional landlord whose sole earnings are derived from a property portfolio, your lender may ask you to provide accounts for your properties, and accompanying SA302s, so the income can be verified for a mortgage application.
Is it possible to get a mortgage without proof of income?
In the past, self-certification or ‘self-cert’ mortgages were available, which allowed applicants to ‘self-certify’ their earnings without having to provide evidence of income.
Needless to say the scheme was abused, with many borrowers landing themselves in high levels of debt they were unable to repay; self-cert mortgages were banned in the UK in 2011 after the credit crunch.
Generally speaking, if you want any form of income to be accepted for a mortgage application, you need to provide your lender with proof. To prevent the risk of fraud and money laundering, the funds also have to be verified and have a paper trail - which is why large sums of untraceable cash are a big no-no.
Speak to a mortgage broker to further understand proof of income requirements
Calculating and accounting for all types of eligible income correctly can be the make or break for your affordability assessment and mortgage eligibility alike.
If you’re unsure of what types of income you should be declaring or how much weight they will carry towards your mortgage application, don’t hesitate to get in touch for advice from an independent broker.
Our team of experts can also carry out rough affordability assessments to give you an idea of your chances of approval for a mortgage, and look at your application as a whole to suggest lenders are best placed to approach, based on your specific circumstances.
Save time, money and mortgage rejections with the help of The Mortgage Hut: give us a call on 02380 980304 or submit an online enquiry and a member of the team will be in touch for a free, no-obligation chat.
