In the past, it used to be the case that obtaining a mortgage without proof of income used to be possible through a “Self Certification Mortgage,” but this is no longer available to those looking for a mortgage in the UK.
Today, lenders require solid evidence of your income status as an applicant to determine a borrower’s affordability and the maximum loan amount.
Typically, lenders ask for several recent payslips as proof of earnings, but for those who do not have payslips or have multiple sources of income, there may be obstacles in getting a mortgage. This article will discuss ways to overcome these challenges.
How to get a mortgage when you don’t have payslips due to starting work recently
One of the biggest problems that those looking to buy a house encounter is proving they have the right income if they have recently started a new job. This new job is often what makes you eligible in the first place if you have a pay rise.
On the other hand, as you join a new company, you will not be able to prove that you have been paid so far from the company and these payslips are necessary in the mortgage application.
To get around this, you may be able to send the lender an employment contract. However, this varies between each lender’s policy and some will also require proof that is a full time position.
Nonetheless, even with these two pieces of evidence, some banks or lenders may still require the first month payslips at least to make sure the income is correct as bank statements are more reliable.
Can you get a mortgage if you have a job offer with no payslips?
In the case of just having a job offer, a lot of lenders may reject your mortgage application because you are yet to sign the employment contract. A lot can still go wrong with the job offer before anything is finalised.
A company could change their mind or the person with the job offer could use the job offer form as proof to gain approval for a mortgage and then settle with a different job.
A bank needs to make sure that the job you have in your mortgage application is the same one you will be starting to make mortgage applications with and that it is a full time position.
Having said this, in rare cases you can get a mortgage with just a job offer where the salary from the job offer is a lot greater than whatever is needed to make mortgage payments.
Other reasons for approval could be if the applicant has shown a history of working similar roles before.
Are there mortgages for graduates?
There are no direct types of mortgages for graduates but there are mortgage schemes that benefit graduates in the UK. They are the shared ownership schemes and the help to buy equity loans.
Help to buy equity loan mortgage scheme for graduates
Help to buy properties are those that are used with a 95% mortgage, the buyer only puts down 5% for a deposit and the government will meet the rest of the deposit known as a government equity loan.
This type of mortgage scheme is ideal for graduates because as you’re new to the job market, you are unlikely to have a large deposit saved up for a traditional mortgage.
If you do decide to go for the help to buy an equity loan. It is important to understand that the mortgage can only be used on new build properties.
New builds come with their own set of pros and cons so it is important to weigh up the benefit of the loan in comparison with other disadvantages.
Thos buying new builds may not have the same capital appreciation as second hand property owners and they may have to pay for things like service charges throughout their mortgage repayment period.
Shared ownership mortgage scheme for graduates
Shared ownership is ideal for those with a smaller deposit saved like those who have just graduated. However, it comes with a large disincentive of the fact that you’ll only own a share of the home you buy.
Over time, you may be able to pay off the mortgage for the house in full if you increase your income after graduating. However, this means you’ll have to pay more money in interest from a mortgage.
This is an ideal solution for those starting on a lower income and who don’t mind waiting a bit longer to own their property outright as they trust that their income will grow over time.
What counts having the right payslips for a mortgage?
If there are a few scenarios where it is not enough to have a job offer or an employment contract, what do you need to apply for a mortgage and gain approval for a mortgage straight away?
Well, typically, lenders will need to see at least two to three months worth of payslips in order to be confident you have the job you say you have. This alongside an employment contract should be enough.
Of course, there are a bunch of other requirements that lenders have. Including making sure you have the right credit score and you don’t need a mortgage guarantor to allow the lender to gain confidence in your application.
The exact requirements of the lender vary depending on the lender’s terms and also the type of mortgage you’re applying for.
For example, a buy to let mortgage application will still look at a landlord’s personal income but it is largely a secondary factor. Instead, the properties potential rental income will be the main deciding factor on the mortgage application approval.
How to work out what the proof of income is for a mortgage
Sometimes, someone’s personal income can be sp[lit up into multiple types of payments. Besides salary, which you can work out how to prove here, the below table should guide you through how important other types of income are for a mortgage application.
Table showing how important types of income are besides payslips
|Type of income||% taken into account||Evidence needed|
|Commissions||0-100%||Payslips and a few years of P60’s|
|Pension||Usually 100%||Payslips, reward letters, P60s|
|Overseas income||0-100%||Translated payslips and employer’s details.|
|State benefits||0-100%||Bank statements|
|University bursary or grant||0-100%||A letter|
|Child maintenance||0-100%||Bank statements|
|Rental income from another property||Usually 100%||SA302’s|
If you’re self-employed, what kind of payslips are required for a mortgage?
If you’re self-employed, it can be slightly harder to organise your finances if you’re applying for a mortgage as the payslips required are different.
If you are self employed, it could be that you’re on a lower salary than you are in a job but the income you earn relative to the tax you pay is less. In addition, self-employment income is considered riskier to lenders if you cannot produce a longer period of employment history from your own company or services.
As a result, most lenders will require three years of history of your income in the form of a SA302 which is a self assessment tax return. The longer your income has been stable, the better.
The S1302 from should include the following information:
- Your personal income
- The tax allowance you have
- The tax that you have paid for the year
- The tax that you owe for the year
- Any tax that is owed- to you
If you’re a contractor, how can you prove what income you have without payslips?
Being a contractor means your income is similar to if you were self employed. This Construction Industry Scheme (CIS) will make sure there are specialised rules for the tax and national insurance of the property.
As a result, instead of producing a self assessment tax return, you’ll have to issue a CIS payslips. Havings aid this, some lenders will also accept a work contract alongside bank statements
In other cases where a contractor is working with a client for a long period of time, a lender may allow them to gain approval for a mortgage by providing a copy of an invoice.
Using a guarantor to increase the likelihood of gaining approval for a mortgage
Sometimes, without the right payslips, you may be able to use a mortgage guarantor. This is where you have someone who is eligible to pay the mortgage payment in the case where you cannot meet them.
This usually has to be a close friend or family member. However, before doing so it is important to understand the risk associated with having a mortgage guarantor.
You could end up putting someone in debt if you cannot meet mortgage payments for long periods of time.
Is a guarantor mortgage the same thing as a no-payslip mortgage?
No, a guarantor mortgage from having a mortgage guarantor simply means you have guarantor in place to cover mortgage payment in the event you cannot.
On the other hand, a no-payslip mortgage is where there is no evidence of proof of payslips provided to gain approval for a mortgage and other methods are used like an employment contract for example.
If you have a limited company, how can you show income without payslips?
Limited company owners can gain an income from a variety of different sources. For example, they may have a salary from their own income but also may benefit from dividends or a director’s loan.
This can make it extremely hard to calculate the right paulsips to gain approval for a mortgage.
In this case, a lender will likely ask for an average of the income earned over a certain period of time. Like if the owner of the company was self-employed, the longer they have had their payslips and the more consistent they are, the better this looks for a lender and the more likely they are to get approved for a mortgage.
How to prove income from rent for a buy to let investment?
If you have a buy to let investment property and you’re looking to prove your income from it to gain approval for another mortgage without payslips, you’d need to fill out a self assessment form.
This should include all of the income you’re receiving from the investment property as a salary if it is in a limited company. Besides this a lender may also ask to see how the property is performing.
For example, a property that is barely making a profit is likely to appear as a red flag in your application to another mortgage as it is more likely you’ll miss a mortgage repayment based on your rental income.
What if you’re a high net worth individual but you still don’t have the right payslips?
A high networth individual is someone who is defined as having an income that is over £300,000 or having a total net worth of over £3,000,000. For these individuals, they may have to speak to specialist lenders.
This is because there is often a complicated financial structure for individuals with multiple income streams and it is likely there is no one payslip that can be used as evidence.
This is why specialist mortgage lenders are needed as the stress testing of an underwriting process is a lot different to the conventional approach of applying for a mortgage with an average income.
In order to mitigate risk, a bank or lender has to usually sit down with the individual and attempt to understand their finances in a lot greater detail.
For some high networth individuals, it could be that an additional mortgage is considered risky because the individual is in a lot of debt, despite them having a high net worth and salary.
What kind of mortgage do you need as a high-net worth individual?
Typically, a high networth individual would need a specialist mortgage. This type of mortgage is simply called a high net worth mortgage as it is done by a lender who specialises in this area.
In order to find a specialist lender like this, make sure you look at reviews as those who are more experienced are likely to do a better job at making sure your mortgage application is approved based on a complicated financial situation.
What should you do if your salary has increased?
If you have recently started a new job with a higher salary, this can improve your affordability calculation, allowing you to purchase a more expensive home.
You shouldn’t refrain from letting your lender know in this case if your mortgage application is still being processed. However, if you already have gained approval for a mortgage, it is not necessary to update the lender.
The lender will just use the original payslips you submitted at the beginning of the mortgage application. Nonetheless, there may be the option to easily inform your lender of your new salary online or on the phone.
Besides this, it is a good idea to make sure you have a higher salary before applying for a mortgage, as it increases your purchasing power and enables you to afford a higher value property.
Some may also need to wait until they earn a certain amount before they are able to afford a property at all.
What should you do if your payslips have decreased?
In the case that a lender has approved your mortgage application and you have started paying it off, there are a few options you can take if your salary goes down and you no longer can afford mortgage payments.
These include getting a government loan, remortgaging the property to reduce mortgage payments based on a new valuation or relying on insurance if this is in your mortgage repayment plan.
However, if you’re yet to gain approval for a mortgage and you have recently left a job or had a reduction in your earned income, it is in your best interest to wait until you have secured a salary again.
Depending on how long this decrease in your salary goes on for, you may end up defaulting on your mortgage payments in the future and this can cost you money in the long term if the bank has to repossess the property.
In conclusion, getting a mortgage without payslips can be challenging and it certainly has gotten harder in recent years. By providing alternative forms of income documentation based on your individual financial situation, there are other routes you can take.
Especially if you have the income but you have difficulty proving it through payslips such as if you’re self-employed or earn through a limited company instead of a conventional salary.
So, read this article in detail and do not be afraid to ask questions to your lender as you go.