An Olympian who won a rowing gold medal at the Rio games this summer has disclosed that his £28,000 tax-free income doesn’t count as income for a mortgage. His plight prompts the question: what will lenders accept?
Lenders’ main aim is to establish whether any declared income is sustainable and can be relied on to help make mortgage payments.
So, while a wide range of income sources will generally be accepted, the degree of proof required varies according to the income type.
For instance, Nationwide will accept basic pay, bonuses, overtime pay, commission and more.
The building society requires only the latest payslip as proof of basic pay, but needs the previous four statements for any half-yearly bonus payments and the previous three monthly payslips – or eight weekly – for any overtime.
Those who are self-employed generally need to supply greater levels of proof. For a sole trader, Nationwide requires an accountant’s certificate covering at least the previous two years for loans of up to £500,000, and two more years of accounts for a loan of more than £500,000.
Many lenders will consider income from a second job, although third jobs are rarely taken into account.
Halifax’s website says that when it decides whether to include income from a second job, it will consider the hours worked, distance between the two jobs, length of time in both positions, the number of days the borrower works per week and more.
Some lenders set out specifically the percentages of different income types they will accept.
Accord Mortgages, which features regularly in Telegraph Money’s best-buy tables, accepts 50pc of “sustainable overtime and bonus” income, 50pc income from a second job and 100pc of the income from two part-time jobs.
Other income types that are widely considered include working or child tax credits, disability benefits, directors’ dividends and pension income.
There are a number of forms of income deemed unacceptable, although there is significant variation between lenders. Nationwide, for instance, won’t count income from lodgers, third jobs or educational grants.
HSBC also won’t allow lodger income or maintenance income without a court order, bursary income or mortgage subsidies.
If you have income that is not accepted by the major banks and building societies, you may have more luck with smaller lenders that scrutinise mortgages individually and are more likely to consider unique circumstances.
For instance, Aldermore accepts 100pc of income from “second and other jobs”.
Will Satch, who was part of Team GB’s men’s eight team, said he had been rejected by 40 lenders as his income from UK Sport was regarded as “performance-based pay”.
Jonathan Harris, co-founder of mortgage broker Anderson Harris, said: “The larger lenders are more algorithmic. They have a system that they plug your details into and if you have any unusual income it won’t tick their boxes. Very few take investment income into account, for instance.
“Challenger banks and some building societies can be better at dealing with unusual income, as they want to capture market share.”
Mr Harris added that where lenders do count investment income, income from stocks and funds, collective investments, and property investments could all be considered.
Lenders may look at past performance, the composition of a portfolio and other contextual factors.
Rob’s comments. Income is a tricky business when applying for a mortgage. If you don’t know who is doing what you may find that you are reading a lot of websites and calling a few banks. Cut out the hard work and let the broker do it.