Mortgage Application - What do Mortgage Lenders Include/Exclude?

Posted 27 May 2016 by Nick Parkhouse

WhatHouse? tells you what types of income you need to bear in mind when a lender starts to calculate what it may lend you to purchase a home...

Getting a mortgage relies on you proving that you have the income to support the loan. Lenders use a combination of income multiples and affordability checks to determine what you can borrow.

Your income may come from various different sources but don't assume that a bank or building society will use every penny of your earnings to determine what you can borrow. Our guide looks at the types of income that are generally included and excluded from a lender's assessment.

Bear in mind that even if a lender accepts a certain type of income, they may not simply apply their income multiples to this income. Some lenders have a list of income sources which they class as 'secondary' meaning that they will only use a proportion - typically 50% - of that income.

The income lenders will generally take into account

When applying for a mortgage, lenders will generally take into account any income that is regular and that you can prove. This includes:

  • Your basic salary
  • Overtime, bonuses and commission - lenders will generally take an average of this income over 3-6 months
  • Other guaranteed pay from your employer - this can include a location allowance, car allowance, mortgage subsidy or shift allowance
  • Income from self-employment - this includes your share of net profit, and director's salary and dividends. Depending on the lender they will generally need at least two years’ proof of earnings (accounts or an accountant's certificate). They may use the most recent year's figures or an average
  • Income from a second job as long as this is regular/guaranteed and you can prove it
  • State retirement pension
  • Pension credits
  • A private pension - you will need to provide payslips or a P60
  • Investment income - lenders can take this into account but will generally need this income to be a guaranteed amount for the foreseeable future
  • Child maintenance - you will generally have to provide a Court Order to evidence this or an assessment from the Child Support Agency

Some lenders will also take benefit income into account when determining what you can borrow. This may include Child Tax Credit, Child Benefit, and Working Tax Credits as well as a range of disability benefits including Incapacity Benefit, Disability Living Allowance, Attendance Allowance and Employment and Support Allowance.

Benefits and maintenance will generally only be taken into account to support a mortgage application where you also have income from a job, self-employment or a pension. Many banks and building societies won't lend if your income is solely from benefits and child maintenance.

What lenders generally exclude

If you're looking to get a new mortgage, a lender will generally not take any of the following into account when calculating your income:

  • Lesser employer benefits - including phone allowance
  • Expenses
  • Some benefits - these generally include Housing Benefit, Income Support and Jobseeker's Allowance
  • Income from lodgers or letting out a spare room
  • Income from casual employment
  • Foreign income - lenders will generally not lend to you based on any earnings not in sterling

Other property

Income from other property that you own might be important to your application. Some lenders will accept this income, and some will not.

If a lender accepts rental income they will also take into account any mortgage commitments that you have on other properties. Some lenders will want to see accounts showing your property 'business' while others may want to see tenancy agreements to prove the income.

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