One of the most important things to consider when purchasing a new home in the UK, is how you plan to pay for it. The amount you will be able to borrow depends on a number of different factors, including your income.
In this article, we will look at six different types of income that can be used for a mortgage in the UK.
1. Employment income (Permanent / Temporary / Fixed-Term Contracts)
This is the most common type of income used for a mortgage. This is the income that you earn from your employed occupation, which is usually paid on a monthly basis. Lenders will typically want to see a few months’ worth of payslips to verify your income, and they will also look at your employment history to see if your income is sustainable.
If you receive bonuses, overtime, or other types of additional income, this may also be taken into account. However, lenders will typically want to see a track record of these additional income streams, and they may only use a percentage of it when calculating how much you can borrow.
2. Self-employed income (Sole Traders / Partnerships / Limited Companies)
If you are self-employed, you can still get a mortgage, but it may be more challenging as not all lenders are as accommodating for self-employed borrowers.
Lenders will want to see evidence of your income, which can be more difficult to provide if you don’t have a regular payslip. You may need to provide several years’ worth of accounts to demonstrate the sustainability of your income, and your lender may use an average of your income over that period to calculate how much you can borrow.
If you are self-employed and looking for a mortgage, it’s a good idea to speak to a mortgage broker who can help you find a lender that is more likely to approve your application.
3. Rental income (Residential Buy-to-let / Commercial Investments)
If you own a rental property, you can use the income from this to support your mortgage application.
Lenders will typically want to see evidence of your rental income, such as tenancy agreements or bank statements showing rental payments. They may also take into account any expenses associated with the rental property, such as maintenance costs.
Again, not all lenders accept rental income as an acceptable income, which is why speaking to a mortgage broker can be incredibly helpful.
4. Pension Income (Private / State)
If you are retired and have a pension, you may be able to use this income to support your mortgage application. Lenders will typically want to see evidence of your pension income, such as pension statements or tax returns.
It’s worth noting that if you are relying solely on pension income, you may find it more challenging to get a mortgage. This is because pension income is typically less stable than employment income, and lenders may be more cautious about lending to retirees.
5. Benefits and Tax Credits
If you receive benefits or tax credits, you may be able to use this income to support your mortgage application. However, not all lenders will accept benefits and tax credits when calculating how much you can borrow. Some may only use a percentage of this income, while others may not accept it at all.
6. Investment income
If you have investments, such as stocks, shares, or bonds, you may be able to use the income from these investments to support your mortgage application. Lenders will typically want to see evidence of your investment income, such as bank statements or tax returns. They may also take into account any expenses associated with your investments, such as management fees.
Not all lenders will accept investment income when calculating how much you can borrow. Some may only use a percentage of the investment income, while others may not accept it at all.
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PLEASE NOTE: Article written 19th May 2023. Information contained within this article is likely to change and therefore should not be relied upon or form part of any form of decision making without seeking professional advice. *
YOUR HOME MAY BE REPOSSESSED IF YOU DON’T KEEP UP REPAYMENTS ON YOUR MORTGAGE
Any guidance and/or advice contained within this document is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK. Any technical or regulatory information contained within this document was correct at the time of producing it but as it may be subject to change it should not be exclusively relied upon when making a financial decision. The Financial Conduct Authority does not regulate advice on Buy to Let mortgages.
Article written: May 2023 190523 MZ000272
