An important part of any mortgage application is the affordability check – where the provider decides how much you can afford to borrow, and therefore what size mortgage you’ll be offered. To get an accurate assessment, you’ll want to know what counts as income, so you can declare everything you have to offer.
Can I count bonuses and overtime in my salary?
For most people, their salary will be their main or only source of income. So, your application could be straightforward. When calculating your current pay, be sure to mention overtime and bonus pay to your mortgage adviser so they can take this into consideration when looking at your income as a whole.
If you want any extra income from your job to count, you’re going to have to show that this is something you get regularly, not just as a one-off. This means you’ll likely have to show multiple payslips over a period to back up your claim. How much weight is given to the extra pay during the assessment will depend on the lender, so clarifying the amounts with your adviser first, so they can match you with the right lender, is paramount.
This is especially relevant for those who work on commission. They may have a low base salary that’s supplemented by commissions, which could end up more than doubling it. Some lenders won’t accept this extra income and look only at the basic pay, but it is the job of your mortgage adviser to place you with the right lender.
If you have more than one job, don’t forget to hand over payslips from all your employers. You may also need to clarify exactly how many hours you work for each job and how long you’ve been in each position, so the lender can determine the stability of the work.
Can I count freelance and self-employed income towards a mortgage?
An exception to the above, in some ways, is freelance work, which could be seen as having many different jobs working for many different people. Ever since the financial crisis, mortgage providers have become stricter in terms of what they’ll accept, which means freelancers and other self-employed workers need to ensure they get their proof of income correct and get the right advice on which lender’s criteria suits their circumstances.
As such, they’ll have to be extra prepared to show their previous earnings, rather than projections. Generally, you will need two/three years of history, but there are some options for those with just one years self employed accounts.
This of course depends on the type of self-employment. While people who own a large company will also be their own boss, and therefore technically self-employed, it’s not the same situation as someone who’s a sole trader with only a few repeat clients. Most mortgage providers will take this account. Directors may even be able to use their company’s profits as proof of suitability, with 12 months of records enough for some lenders.
Whatever your specific situation, make sure your accounts are in order for your mortgage adviser, who will ensure they are presented in the best possible way. Different providers will have different levels of experience when it comes to mortgage applications from freelancers or the self employed; it’s better to know how or even if they will be able to help you before you apply. So, if your income changes month-on-month, your adviser can choose a provider based not just on the lowest rate but also on their ability to see your worth.
Can I get a mortgage on a zero hour contract?
Similarly, zero hours contracts can make it harder to find a mortgage. Some lenders will include income from zero-hour contracts, subject to seeing evidence of 12 months of payments. In some cases, lenders may decide to only use 50% of your income. When you are ready to apply for a mortgage, it is worth a chat with one of our preferred mortgage advisers.
What else can count towards a mortgage?
Besides your straightforward earnings, there are some other sources which can count as income for an application. These include pension income, investment dividends and Government benefits. If you have the paperwork to show that you are getting this income on a regular basis, some providers can be happy to include these funds in their assessment.
The situation is a bit more complicated when it comes to lodger or rental income. If you are planning to rent out a room in your property, to take advantage of the Government’s Rent a Room scheme for instance, some providers may take this into account.
Similarly, if you’re already a landlord of a different property, not all providers will accept rental income as additional income, or may just take a percentage of it.
Mortgage applications are now a lot tougher than before the financial crisis, which means that you will need to provide more information to prove that you can afford a loan. Depending on the provider, you will still be able to borrow around three to four times your overall income, after considering your deposit and outgoings as well. Speaking to a mortgage adviser can increase your chances of applying to the most appropriate lender.
The provider will go through your entire expenditure with a fine-tooth comb. You’ll be expected to provide bank statements and will have to explain where your money’s going, with everything from childcare costs to pension payments considered. This will be lined up against your income and used to determine affordability.
Ultimately it will be the lender’s decision regarding what they think you can afford to pay each month that will define what they will lend to you. They will always build in a margin to account for increases in interest rates so if things change you will still be able to afford the repayments. Always consider the risks as well as the potential rewards before deciding to sign on the dotted line with any mortgage provider.
- Make sure you have details of your income, including payslips and bank statements, before applying for a new mortgage.
- Regular overtime and bonuses can be included in determining your total income.
- Pension benefits, dividends and state benefits can also be included when determining your total income.
- Freelancers may well experience a harder time getting a mortgage – seek professional help from a mortgage broker, if necessary.
- Expect your outgoings to be examined closely by the provider – it is as much in your interest as it is for them to ensure you can afford a mortgage.