Following the UK’s financial crisis in 2008, the lending rules have been tightened resulting in a number of changes, including a requirement for mortgage applicants to prove their income levels as part of the mortgage application process.
However, should a mortgage applicant not be in a position to be able to prove their current income or for example, a self-employed applicant does not have financial records covering most lender’s specified duration, there are often some still some options available to be able to obtain a mortgage.
This article will explore how to obtain a mortgage should you not have any proof of income, what type of mortgages will be available in such circumstances and what other documentation will be required to secure a mortgage.
Can a Mortgage be Obtained without Proof of Income?
The usual process to calculate the total mortgage value that can be offered to an applicant is to multiply the annual salary by the lender’s set multiplier, which is often between 3.5 and 5. Therefore, without proof of the annual salary, a mortgage offer can be tricky to obtain.
In addition, the potential lenders will use an annual income figure to undertake affordability checks.
Despite the challenges, there are a number of lenders that will consider offering mortgages to those applicants without full proof of income, however the risks to the lender are fairly high and therefore the terms offered will likely include higher interest rates for example.
They will be increasingly likely to offer a renovation loan or mortgage, since it’s within their interests to offer financial backing that increases the value of the asset.
Please note that self-cert mortgages, where income does not need to be proven to be obtained are not recommended, in fact the Financial Conduct Authority has warned against using such financial products.
Self-cert mortgages are commonly found in Europe and can be accessed by certain loopholes within the UK regulations, however as they fall outside of the UK regulations, they are not protected by a compensation scheme.
What Documents will Lenders Require to Prove Income?
There are a number of different ways that a mortgage applicant can prove their income. Some of the following types of documentation that can prove income are:
- Bank statements
- Tax Returns
- Letter from employer including offer letters
- Payslips
- Self Employed accounting documents
Can a self-employed person obtain a secured loan without proof of income?
During the mortgage application process proof of income is required for various calculations to be undertaken by the lender, therefore almost all lenders will require some form of proof of income.
For a Self-employed mortgage, typically the following documents will need to be provided to the potential lender:
- Self-employed accounts, covering a minimum of 2 years
- A tax year overview document from HMRC (SA302)
- Full signed company accounts
- A signed reference from a qualified and registered accountant stating the income figures.
However, if an applicant has recently become self-employed, or does not yet have accounting records covering a sufficient period to prove income, there are other methods that lenders can use to review an application.
In addition, there are some mortgage lenders who specialize in the self-employed market however such lenders would rarely be accessible without the use of a specialist mortgage broker.
Therefore, if you are recently self-employed and seeking a mortgage, it is strongly suggested that an appointment is made with a mortgage broker to discuss your options before proceeding with any applications.
Please note applications that are declined will negatively impact your credit score, therefore advice should be sought ahead of applying for mortgages.
What Types of Income are Eligible for Mortgages?
The common types of income accepted by mortgage lenders are as follows:
- Payslips – Commonly most lenders will require the most recent three months’ worth
- P60 documents – The past two year’s
- Bank Statements – Often, the most recent three months
- Employee Contracts – Some lenders will accept new contract letters from employers or reference letters.
- Bonus or commission – Some mortgage lenders will accept bonuses and commission, whereas others will not, or will only take a percentage of the total bonus into their calculations of income. Should bonuses add a significant value to your income, it would be worth seeking the advice of a specialised mortgage broker to confirm which lenders would be the most appropriate.
- Overtime and shift allowances
- A bursary or Grant
- Other income such as pensions or state benefits – Again, the acceptance of pension and benefit income will vary between lenders.
- Overseas Income
What Type of Mortgages are Available to Those without Proof of Income?
As briefly mentioned, self-cert mortgages found outside of the UK are typically the only way to obtain a mortgage without any proof of income. These financial products are not recommended, and it would be advisable to find another method of proving income rather than using such a product.
If you are in a position where you are struggling to prove your income, it is recommended that you make an appointment with a mortgage broker or independent financial advisor who can advise the options available of obtaining a mortgage.
Summary
Some lenders do appreciate that every mortgage applicant is unique and will have various backgrounds, however there are strict regulations within the UK that the lenders are bound to, which includes requiring proof of income.
As MoneyGuide.org.uk states we have discussed throughout this article, there are various sources of income that can sometimes be included within an application and different ways of proving income.
It is highly recommended to make the use of specialised mortgage broker ahead of any applications, so that an applicant can benefit from receiving inside market knowledge, the whole of the mortgage market can be searched to find the most appropriate financial product, and that all documentation required can be checked before any application submission. Brokers can also advise the most suitable lenders from experience and success of similar cases.
As with any financial decision, it highly recommended that independent financial advice is sought before committing, to ensure that all terms are fully understood.
Please note that as with all secured loans, mortgages have the ultimate consequence that the property can be repossessed if the repayments are not kept up.
