Understanding Payslips: A guide to your Mortgage Application

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April 12, 2022 - Furnley House

Understanding Payslips: A guide to your Mortgage Application

Whether you are applying for your first mortgage or buying a bigger home, knowing what you need in terms of payslips and paperwork for your mortgage application can be really helpful.

One of the most important things a lender is looking for is proof that you earn enough money to be able to comfortably meet future mortgage repayments. They will also want to get an idea of how you manage your money and how much you have saved. Having all the paperwork ready to share with your mortgage adviser will help to get your application get processed as quickly as possible and if you need one, provide you with a mortgage offer in principle.

If you are employed, here’s what you will need to provide:

  • You need to provide at least three of your most recent monthly payslips to your mortgage adviser or lender. If you get paid weekly, then you would need 13 weeks of payslips to cover the same period of time.
  • You will also need to provide three months of bank statements, and proof of your
  • A copy of your job contract is sometimes required if you are about to start a new job or you are new to the role and don’t have enough pay slips. If you are expecting a pay rise, promised a promotion, or due a bonus payment you may have to provide written evidence of this.
  • Not all lenders ask for a P60 however it’s good to have your document to hand. A P60 provides a summary of your earnings from the previous tax year and it’s a good way to verify any additional income outside your regular job and payslips. Sometimes a lender will ask to see a P60 as part of routine Money Laundering checks.

If you are self-employed, here’s what you will need to provide:

A mortgage lender will consider you are self-employed if you own more than 20 to 25% of a business from which you earn your main income. You apply for a mortgage the same way as an employed person, so you can access the same deals, however it can be more difficult to verify your income, so a little more information is required.

  • You will need to provide at least two, but ideally three years accounts, preferably prepared by a certified accountant. Some lenders do allow just one years accounts from applicants where continuity from being employed to self-employed in the same field can be demonstrated, such as a dentist moving up in their career and opening their own practice.
  • You will also need to provide SA302 forms, or a tax year overview for the past two or three years.
  • Prepare copies of at least six months of your most recent bank statements and proof of your deposit.
  • Some lenders are asking to see evidence of your income throughout the Covid19 pandemic, so you should be prepared to be able to demonstrate this.
  • Lenders will usually look at the average profit you’ve earned over the past few years, whilst profits can fluctuate, they will be looking for stability in the business. You may need to provide evidence of upcoming contracts, dividend payments or retained profits depending on your form of self-employment. If income is reducing or volatile, then be prepared for underwriters to only lend based on the lower income amount.
  • Be prepared to hit unexpected issues which can worry a lender and talk to a mortgage adviser before start looking for a property to buy. A change of ownership of a limited company is one example that can cause concern. If a 50% shareholder buys out their partner, to become 100% shareholder, it might be a great business decision however it can be a red flag to a lender. They can see a major change in the ownership of a company as a risk, expecting possible volatility and may shy away from making a loan offer until the new structured company has a track record of profit. A good mortgage adviser will be able to guide you.

Every mortgage applicant is different, as is each lender and this is where using a good independent mortgage adviser can help. If your application is not straightforward, then your adviser will have experience working with lender underwriters, and will be able to ensure your application is well prepared and directly discuss any queries regarding your application.

Our team of advisers at Furnley House are able to help you secure a mortgage. To find our more call 0116 269 6311 or email yourmortgage@furnleyhouse.co.uk.

 

All information correct at the time of writing.

Your home may be repossessed if you do not keep up repayments on your mortgage.