What mortgage lenders look for in mortgage applicants

Getting a mortgage can be daunting. That’s why it’s important to know what to expect and how to give yourself the best chance of being accepted. But how do mortgage companies verify your income? 

One of the main challenges in getting a mortgage is understanding how mortgage lenders verify your income, and how they expect you to prove it. The way you show your income will depend on whether you’re self-employed, or employed by a business that’s not your own. 

In this Guide, you’ll find all the information you need to understand what lenders are looking for when you apply for a mortgage, the ways they check your income, plus links to other useful Guides to help you with your mortgage application.

How do mortgage lenders verify your income?

When you’re applying for a mortgage, it sadly isn’t as easy as just letting the lender know your annual salary. You’ll need to prove you earn what you say you do so they can verify your income and work out what kind of a mortgage you can afford. You’ll usually do this by submitting payslips, tax returns, or employer references. But there are a few differences in the way you prove your income depending on if you’re employed by a company, or you’re self-employed. 

Employed vs self-employed mortgages

If you're an employee, you'll likely have a contracted salary which means you can produce payslips and P60s to prove your income. Mortgage companies can easily calculate how much of your pay will go towards your monthly mortgage repayments. When looking at employed applicants, mortgage lenders will want to see recent payslips (usually 3 months), a P60 and bank statements. 

If you're self-employed, proving your personal income can be slightly trickier. After you've worked out taxes, overheads, expenses and other costs, it might be harder to show a lender that your earnings will cover the mortgage. When looking at self-employed applicants, mortgage lenders will want to see a two or more years' certified accounts, SA302 forms or a tax year overview, and bank statements.

If you’re a limited company director, it’s important to note that you’re classed as self-employed in the eyes of a mortgage lender. Same goes if you’re employed in a Construction Industry Scheme (CIS) job role. A mortgage broker will be able to advise you of how you need to prove your income in both of these cases. 

What do mortgage lenders check?

All mortgage lenders have different lending criteria that they use to assess mortgage applicants. Lending criteria differs from lender to lender, but generally, when lenders review your mortgage application, they’ll usually assess the following factors:

•   Your income – your regular cash flow

•   Your credit report – they’ll prefer a positive credit history

•   Your assets – anything else which could give you financial stability

•   Your deposit – how much you can put down up front

How many payslips do I need to give on a mortgage application?

Different lenders ask for different things. But usually you’ll need to show three month’s worth of payslips and possibly a P60. If you’ve just started a new job, they’ll want to see a signed contract or an employer reference to verify your employment.

What do I need to supply a mortgage lender if I’m self-employed?

If you’re self-employed and applying for a mortgage, you'll need to provide:

•   A SA302 or tax year overview

•   Signed company accounts

•   A reference from your accountant

An SA302 is a brief summary of your income that's been reported to HMRC. It's produced once you've submitted your self-assessment tax return and shows the amount of tax you need to pay. 

You can use your SA302 as part of your mortgage application to prove how much you’ve earned from self-employment to a mortgage lender. The SA302 is the easiest way for a lender to check the income on your mortgage application is the same as you reported to HMRC.

How to get your SA302

To get a copy of your SA302 from HMRC:

• Log in to your HMRC online account and go to the ‘Self Assessment’ section

• Click on ‘More Self Assessment Details’

• Then click on ‘Get your SA302 tax calculation’

If you have any issues getting you SA302, contact HMRC by visiting their general enquiries page to get in touch with them. 

Another way to stay on top of your tax return but also get your SA302 is to use accounting software. A lot of self-employed people use accounting software to work out their tax calculations themselves. One example is FreeAgent. Accounting software like FreeAgent means you can see what your tax will be before you do your SA302 through HMRC, or before you get a tax bill. 

You should be able to file your tax return directly to HMRC via your FreeAgent account which saves time. And you can get a detailed tax breakdown without having to contact HMRC.

You can get FreeAgent completely free depending on who you bank with, or free for 30 days if you want to test it out as a trial.

What mortgage lenders accept SA302s? 

Mortgage lenders all have their own lending criteria, that can differ from lender to lender. So it’s always a good idea to check with your lender or your mortgage broker to see what you’ll need if you’re self-employed. 

Click here for a list of mortgage lenders who accept your SA302, according to Gov.uk website. These lenders accept either:

• a copy of your tax calculation (SA302) printed from your HMRC online account

• a tax calculation printed from commercial software used to submit returns (such as FreeAgent)

They’ll also need a tax year overview, which you can print from your HMRC online account.

The lenders on this list have agreed to accept tax calculations and tax year overviews that customers, or their agents or accountants, have printed themselves.

Do mortgage companies check your details with HMRC?

Yes, they can. The HMRC Mortgage Verification Scheme is being used more and more by lenders. The scheme aims to tackle mortgage fraud by allowing lenders to contact HMRC and check if the numbers on your application match their records.

However, if you're a freelancer or contractor, this scheme could cause problems if you use your gross contract rate when applying for a mortgage with a company that doesn't have the expertise of dealing with contractors. You’ll need a specialist mortgage broker if you’re looking to apply for a contractor mortgage. For more information on contractor mortgages, have a look at your Mortgages for Contractors page. 

Should you try to fake an SA302 or payslips?

You should never try to fake an SA302 or fake your payslips to get any kind of loan. Because there’s been a lot of faking SA302 forms and payslips in the past, mortgage lenders have pretty sophisticated fraud detection nowadays. It’s really not worth getting found out and potentially getting a criminal record. 

If you did get prosecuted, that won’t be good for your overall ability to get credit again in future, so your dream of owning a home would be ruined. 

If you’re genuinely thinking that faking your income is the only way to get a mortgage, you should definitely speak to a specialist mortgage broker. They will be able to give you expert advice on your case, and will know an HONEST way to make sure you have the best chance possible of getting approved for a mortgage.

Do mortgage lenders contact your employer?

It depends on the lender, but most mortgage companies will want to verify your employment. Usually if you’ve provided your payslips this will be enough, but some lenders may want to call your employer to check the salary information you’ve provided is correct. However, this would be quite rare. A mortgage provider would probably only ever do this if they’re not sure about your income or application. 

How far back do mortgage lenders look on your bank statements?

Lenders will need to be sure you can afford your mortgage repayments without struggling. An important part of the process will be checking your bank account statements to see how you manage your money and look at your spending habits. Most lenders will only need two or three months of statements for your application.  

The main things a lender will be checking is your income, your regular bill payments, and transaction histories. Mortgage companies will be checking your outgoings against potential repayments to see if you’ll be able to afford them.

If you’re self-employed, you may have to provide up to three year’s worth of accounts along with your bank statements to prove your income is stable.

Being regularly overdrawn or a record of payday loans will be red flags to lenders. If you’re planning to apply for a mortgage in the next three months, then it’s best to avoid any bad habits in the months leading up to your application.

What do mortgage lenders look for on your credit report?

Your credit history is an important factor that lenders will consider when looking at your mortgage application. They’ll be checking for a positive credit history to see how well you handle your finances.

The main factors mortgage companies will consider when checking your credit:

• Your credit history – how much you’ve borrowed, how much you still owe, and your repayments

• Whether you’ve had any county court judgements or ever been declared bankrupt

• How much credit you’re using out of what’s available to you

• Whether you’ve ever missed any payments

What credit score do mortgage companies look for?

Surprisingly, you don’t have a one-size-fits-all credit score. You’re ranked differently by different credit agencies who have their own scales. Lenders will usually check your credit score from the three big UK credit agencies: Equifax, Experian, and TransUnion. Each agency has a slightly different way of ranking you, so it’s a good idea to be informed of your score with all of them. 

A few different factors can contribute to how you rank with credit agencies. These include:

• Your borrowing history – what you’ve borrowed, who you’ve borrowed it from, and how you’ve paid it back

• Public court records – any negative notes like county court judgements or bankruptcy

• Linked finances – if you have any joint accounts, the credit history of the person you’re linked to can be taken into account

• Your addresses – if you’ve had a lot of previous addresses in a short space of time, this could work against you

To give you an idea of what an average UK credit score might look like:

Equifax: 0 – 700 (380 average)

Experian: 0 – 999 (759 average, or ‘fair’)

TransUnion: 0 – 710 (610 average)

These numbers are just a guide, it’s possible to get a mortgage whatever your credit score, but generally the higher the score, the easier it can be to get approved.  

Just because you have bad credit, doesn't mean you can't get a mortgage. We recommend using Checkmyfile to find your score. Checkmyfile shows your credit information from four major credit reference agencies, and is the most thorough way to check your history in the UK.

Read our Guide checkmyfile Explained to understand more, or register for a 30 day free trial of checkmyfile.

What credit score do I need to get a mortgage?

It’s a good question, but not one with a simple answer. Because a 'universally recognised credit score' doesn't actually exist, there isn’t a minimum credit score you need to get a mortgage. It’s possible to get a mortgage whatever your credit score, but the lower that score is, the more difficult it becomes. 

Get tips on how to improve your credit score before a mortgage application in our Guide How to improve your credit score before applying for a mortgage.

What if I have bad credit?

Most mortgage lenders will want you to have an acceptable credit score before they’ll be willing to offer you a mortgage. But there are specialist mortgage lenders who will consider you with a very low or even no credit score if you've not managed to build a credit history yet.

If you need a mortgage but are worried about your credit score, the door of your dream home isn’t necessarily closed to you. You’ll probably just need a specialist mortgage broker to get you the right mortgage. Get matched to your perfect mortgage broker by making an enquiry. 

What assets do mortgage lenders check?

Assets are items you own with a monetary value. This can be cash savings, property or other valuable items like a car, artwork, or jewellery. Mortgage companies will consider any assets you might have when reviewing your application. If you have an emergency, you could use the funds from these assets to pay your mortgage. This makes you look less risky to potential lenders.

What is a good deposit for a mortgage?

Deposit requirements will vary between lenders. A ‘good’ deposit will depend on the price of the property, but the average deposit for a mortgage in the UK is 15% of the total price. If you have a bad credit rating, you might need to put down a larger deposit up front, as you’ll generally be seen as a higher risk to lenders.

Mortgage lenders are being extra cautious as a result of the Coronavirus pandemic, which means first-time-buyers and home movers may have to put down larger deposits than they used to. Some mortgage lenders have been removing high loan-to-value loans, with some making their terms tougher and increasing interest rates for buyers with a 10-15 per cent deposit.

However, interest-only mortgage options are on the rise. Moneyfacts found that 61% of mortgages currently on the market offer an interest-only option, which could be good if you’re self-employed or have suffered financially.

Mortgage calculators

If you’re considering applying for a mortgage, it’s helpful to use a mortgage calculator to see what your repayments and affordability might be. The exact amounts will depend on the type of mortgage and lender you go for. Our easy-to-use calculators can give you an idea of what your finances as a homeowner might look like.