What income can I use for a mortgage application?

An important part of any mortgage application is the affordability check. This is where the provider decides how much you can afford to borrow, and therefore what size mortgage you'll be offered.

A key part of this assessment will be how much you earn. So, to get an accurate assessment of how much you can afford to borrow, you'll need to know what counts as income to see how your finances stack up.

What counts as income for a mortgage?

Basic income

For most people, their salary will be their main or only source of income. So, your mortgage application could be straightforward. The longer you've been in your current job, the better it will look and the more you will likely be able to borrow, with the lender seeing you as a safer bet.

When calculating your current pay, be sure to include things like overtime, commission and bonuses, which can all count towards your application – provided this extra income is something you get regularly, not just as a one-off. This means you'll likely have to show multiple payslips over a period of time to back up your claim. How much weight is given to the extra pay during the assessment will depend on the lender, so you may want to clarify this with them beforehand.

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. However, some lenders won't accept this extra income and look only at the basic pay, so beware.

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. Note that third (or fourth) jobs generally don't get counted.

Freelance and self-employed income

An exception to this, 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 may have a harder time getting a mortgage.

As such, they'll have to be extra prepared to show all earnings from the past two/three years (you’ll need your completed tax returns for this) as well as recent bank statements. For this reason, it's generally advised that anyone considering becoming self-employed arranges their mortgage before they change their situation. Newly self-employed people will likely find it hard to get a mortgage or change their current mortgage deal.

This of course depends on the type of self-employment. While people who own a high-flying 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 into 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 and ask the provider for advice before you start your application. Different providers will have different levels of experience when it comes to mortgage applications from freelancers; it's better to know how or even if they will be able to help you before you apply. This is why it’s often worth speaking to a specialist broker or adviser for support, who will know the lenders most likely to accept self-employed applications. Read more in our guide to self-employed mortgages.

Zero-hour contracts

Similarly, zero-hour 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’ worth 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’s worth a call to your potential lender to establish their approach to zero-hour contracts, or again, you can speak to a specialist broker for advice.

Pension income

If you receive pension income, you may be able to include this in your mortgage application. Again, you’ll need to provide evidence of this, as well as evidence of any management fees or similar associated with your pension. Bear in mind that if your only income is your pension, you may find it more difficult to be approved, not least because you’ll likely be older which can make it more difficult to borrow for a mortgage as well.

However, you should also note that not all pension income will be counted, as it can depend on the type of pension you’re in receipt of. It may only be income from the State Pension, defined benefit pensions or lifetime annuities that can be included in any calculations, with flexible pension income and fixed term annuities not always accepted. Make sure to check with your mortgage provider.

Other income

There are several other types of income you can use for affordability purposes too, including:

• Government benefits or tax credits, such as Universal Credit and Personal Independence Payments (PIP)
• Investment dividends
• Lodger or rental income

If you have the paperwork to show that you are getting this income on a regular basis, most providers will likely be happy to include these funds in their assessment, though there’s no guarantee. Some lenders may only use a percentage of that income in their calculations, while others won’t accept it at all, particularly in the case of things like investments where income isn’t guaranteed.

The situation can be more complicated still when it comes to lodger or rental income. If you are planning to rent out a room in your property, some providers will take this into account, but not all. Similarly, if you're already a landlord of a different property, not all providers will accept rental income as additional income – some might even see the fact that you have a buy-to-let mortgage as a liability. Given that rental income is used to determine suitability for a buy-to-let mortgage in the first place, it makes sense that it wouldn't be counted twice.

It’s also worth noting that if you’re solely relying on any one of these additional forms of income – particularly in the case of benefits – it can be more difficult to be approved. Speak to a specialist broker if you need advice.

Proof of income for a mortgage

No matter what kind of income you’re using to support your mortgage application, you’ll need to provide evidence of it to your lender. Proof of income that will typically be acceptable includes:

• Payslips. You’ll normally have to provide at least three months’ worth of payslips, showing both your basic salary and any commission/bonuses/overtime that you want to be included in your assessment.
• Bank statements. Expect to provide at least three months’ worth of bank statements to not only show proof of income, but also proof of outgoings.
• Tax returns. If you’re freelance or self-employed in some capacity, you’ll need to provide two-three years’ of completed tax returns and/or tax summaries. Note that if you’ve got both employment and self-employment income, you’ll have to provide evidence for both.

How many times your income can you borrow?

Depending on the provider, you will typically be able to borrow up to 4.5 times your overall income, after considering your deposit and outgoings as well.

However, this can vary heavily depending on the lender and your own individual circumstances – including your income, credit score and outgoings – and you may be offered a higher or, in some cases, lower income multiple. Use our mortgage calculator to get an idea of how much you could borrow.

Outgoings

You can 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.

They’ll go through your expenditure with a fine-tooth comb, with everything from childcare and living costs to credit repayments and pension contributions considered in their analysis. This will be lined up against your income and used to determine affordability.

What is the minimum income for a mortgage?

There isn’t a standard minimum income requirement for a mortgage. Instead, each lender will have their own criteria, and in many cases your overall level of affordability is more important than your base income.

However, it’s important to remember that your income will directly affect how much you’ll be offered by the lender, and it’s important to make sure that your income is sufficient to afford the repayments. One way to increase your income for mortgage affordability purposes is to add another one – in other words, apply for a joint mortgage with someone else.

Joint applications

You may want to apply for a mortgage as a couple. While the same income requirements will apply as for a single applicant – in terms of what counts as income and how to prove it – different mortgage lenders will take the second applicant's income into account in different ways.

Some providers might multiply the main breadwinner's income and then add on the second applicant's income, the resulting figure being the amount they are willing to lend. Other providers might add the two incomes together and then apply a (potentially lower) multiple on the joint amount.

Remember that while a higher multiplication means you can borrow more, it also means you are more at risk if your situation changes and you can't afford the mortgage repayments anymore. 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. Always consider the risks as well as the potential rewards before deciding to sign on the dotted line with any mortgage provider.

Should I speak to a mortgage broker?

A mortgage broker can be invaluable if you’re on the fence about an SVR mortgage. They can help you decide if this kind of deal is right for you, or if you should consider a product with an initial rate instead – and crucially, they can help you access exclusive products and rates that aren’t available to the public. They remove a lot of the paperwork and hassle of getting a mortgage too; find out more about whether you should use a broker in our guide.

Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice. Speak to a mortgage broker today.