Whilst there used to be a time before the last recession, where you could obtain a ‘Self Certification Mortgage’ which didn’t require any proof of income, this is now largely no longer the case. Today, proving your income is an essential part of getting a mortgage.
Mortgage lenders will use your proof of income to help determine your affordability for a mortgage. This also determines the maximum amount that they might be willing to lend to you. Most lenders will ask you to provide a number of recent payslips (typically a minimum of three), along with your mortgage application as evidence of your earnings.
In some cases, however, you may not have any payslips to offer, or they may not fully evidence all of your sources of income. This may be because you are self-employed, or you are a high net worth individual with multiple sources of income, or perhaps you have only just started work in a new job or position.
In this article, we are going to talk about some of the obstacles you might face if you are trying to get a mortgage without payslips and how you may be able to overcome these.
What proof of income is required for a mortgage?
Firstly, let’s start by covering how a mortgage lender would typically ask you to prove your income. This will vary from lender to lender, but you will generally be asked to provide any or all of the following along with your application:
- Bank statements
- Payslips (usually covering the last three months)
- Evidence of bonuses
- Proof of deposit
If you are a UK PAYE earner, proving your income should be fairly straightforward using the above documents.
What proof of income is required for a mortgage if I am self-employed?
If you are self-employed, you probably won’t produce any payslips for yourself. Therefore, proving your income can be a little trickier – but certainly not impossible. Self-employed applicants will need to provide different types of evidence to shed light on their personal financial situation and to show how their business is faring. In these situations, you may be asked to provide:
- A minimum of 2-3 years of Accounts for your business, prepared by an Accountant (some lenders may, in certain circumstances, accept only one year’s Accounts)
- 2-3 years personal tax returns (ideally 3 years SA302s and a tax overview from HMRC)
- Last 3 month’s personal and business bank statements
- Proof of the cash deposit you have available
If you are newly self-employed, providing enough evidence of the above can be difficult. Having only one year of Accounts is a common problem for a self-employed person applying for a mortgage. There are, however, options for those who have been only trading for one year. Lenders base mortgage assessments around risk. The longer you have been trading for, the more reliance can be placed on your earning history. Therefore, the stronger your application will look.
To assess your application, a mortgage lender may look at:
- Your previous salary when employed
- How long you were employed for
- Your current business strategy (start-up, stable, expanding)
- How long you have been self-employed for
It’s important to be careful which lenders you approach when self-employed – particularly if you have not been self-employed for long. We recommend getting in touch with a specialist mortgage broker and advisor, such as us here at Mortgage Light, as we will know exactly which lenders to turn to, to help you avoid you ending up with a declined mortgage application on your record.
Find out more – ‘Self-employed mortgage – how does it work?’
I am a contractor – how can I prove my income?
If you are a contractor and you do not have CIS payslips to support a mortgage application, lenders may ask for a copy of your work contract as proof of earnings. This should document how much you are being paid, how long for and the terms of payment.
Some lenders may even allow you to evidence your earnings by providing copies of your invoices for work completed. These should include the following details:
- Your name
- The name of the company that you are invoicing
- Your unique tax reference (UTR)
- Your National Insurance (NI) number
- The date of the invoice and the period of work being invoiced
- The gross payment due and the work it relates to
- Any deductions including 20% CIS tax
- The net income you will be paid
A lender will also look at your line of work. If you are in a profession that operates primarily on contracts and you can evidence a track record of rolling over contracts or moving from one contract to another, then they will generally deem the likelihood that you will have continuous employment to be higher and consider you less of a risk.
Again, if you are a contractor without payslips, make sure you approach a specialist mortgage advisor and broker. They will know exactly how to help you get a mortgage without payslips by finding the lenders who are most likely to understand and be sympathetic to your circumstances.
Proving your income with a limited company
As a director and owner of a limited company, it may be a little more challenging to evidence all of your earnings from your business. Unlike salaried employees, most company directors will not have a simple, straightforward contracted income that can be easily evidenced via monthly payslips and a P60. A directors income will often vary depending upon the companies performance.
For this reason, the majority of lenders will want to base their assessment on an average of the income earned by the applicant over a number of recent years, rather than relying upon the earnings figure from just the last set of company Accounts.
In these situations, you may be asked to provide the following as proof of income:
- Normally a minimum of the last three years’ company accounts, certified by an accountant
- Copies of personal bank statements for at least the last six months
- A minimum of two years SA302s and overviews
In some circumstances, applicants may want a lender to consider their company’s retained profits towards their earnings or potential earnings, in order to support a mortgage application. In these cases, lenders will want to do additional due diligence on the company to satisfy themselves as to the merits and validity of this approach.
Find out more – ‘Getting a mortgage with a limited company’
A high net worth individual with no payslips
If you are a high net worth individual (that is an individual with a personal income of more than £300,000 a year or with liquid assets of more than £3,000,000), then you may not be able to fully evidence all of your income simply with payslips.
This is because high net worth individuals often have a complex structure to their finances and multiple sources of income available to them. Most high street lenders will struggle to process a mortgage application from such an individual. Their personal finances will often not fit comfortably within the standard mortgage underwriting criteria they use.
The good news is that there are specialist mortgage lenders out there. They know how to assess applications from such individuals and will take a more flexible and understanding approach. These lenders can be difficult to come by. They don’t often have a high street presence. At Mortgage Light, we have the access and experience and know-how to put you in touch with the right people.
Find out more – ‘What are high net worth mortgages?’
Getting a mortgage when you have just started working
Of course, if you have recently changed job, or have only just started working, then you may not have the usual minimum three months’ worth of payslips typically required to prove your income. To combat this, lenders will often want to obtain a copy of your employment contract to see have you started the job. They will also want to confirm that it is a full-time position.
In some cases, this is all the lender requires. To further support an application, however, they may like to see the first month’s wage slip.
We would always recommend enlisting the help of a mortgage broker and advisor. Even for what might appear the most straightforward of applications. However, if you are trying to get a mortgage without payslips or with a complex income, then the need for an expert on your side is even greater.
At Mortgage Light, we have the experience and knowledge that you need to secure the right mortgage. Let us help you by contacting us today via our website or by calling 01908 597 655.