There are many different ways to make money, especially with the growth of the internet. But not all of them will be viewed favourably by mortgage companies. In this guide, we will examine the different types of income and what issues you may experience if you plan to get a mortgage with them. Some of the types of income include:
- Fixed and variable income
- Limited liability partnerships
- Trust income
- Apprenticeship wage and trainee pay
- Bursary income
- Dividends as income
- Mortgages on benefits
- Self-employed mortgages
- Mortgages for professionals
- Mortgages when you are in a new job
- Zero hour contracts and part-time
- Temporary work
The main thing that mortgage companies will look at is that income is sustainable for the life of the loan and is enough to make mortgage payments. They will often also include things like bonuses, commission payments, shares, allowances and more. As mortgage brokers, we look at all the different options to help find the right company for your situation.
How your job impacts a mortgage
Being self-employed means you are your business and there are lots of different models. These include freelancers will a number of clients, contractors with a single client, business owners and even company directors.
Being a professional
This term refers to any number of professions including being a doctor, a teacher, civil servants, in the armed forces or more. With these jobs, the potential for a pay increase and promotions can often be easily mapped and some mortgage companies will look at future earnings as well as current earnings.
Being in a new job
A lot of mortgage lenders want to have 3 monthly payslips as proof of income when you take a mortgage, but some may accept less time. Others may even accept less such as a job offer or being in a new job.
Zero hours contract
Zero hours contracts have grown a lot in recent time, but some lenders do not take these contracts into account as income for a mortgage, even if people believe they can earn enough to make payments. However, there are some companies who will accept them and working with a broker gains you access to these.
When you work part-time, the concern is more about affordability and if you can pay the mortgage rather than the exact number of hours that you work. So if you have the right deposit and are able to show how you can make the payments, working fewer hours isn’t a big problem.
With temporary work, lenders will want to see that you can make payments. Some types of temp work such as doctors and IT workers are easier to be accepted than others. But each case is assessed individually.
If you have a variable income such as zero contracts, high commission with low income or freelancers with variable rates, lenders will look at your income as a whole and look at income for the future to make a decision.
Fixed income mortgages
A fixed income includes a number of situations where you have a set income but not always a job. Some lenders will consider some of these situations while others may not. Some examples include pensions, fixed interest securities, bonds, loan stocks and government bonds.
Mortgage companies will normally look at four different areas to help decide:
- Level of income
- How much you want to borrow
- How much deposit you have?
- What your credit history is like
Some lenders will consider disability benefits as a fixed income for a mortgage. Some may cap the amount of income they will consider in this situation so if you receive £20,000 in benefits, they may consider 75% of it so £15,000. Again, different lenders have their own rules.
Mortgages with no income
Generally, it is pretty tough to get a mortgage when you have no income, a lot depends on what the future situation will be. For example, you may be an experienced landlord with high net worth but no income – they would need to see what savings you had to show you can pay the loan until income starts to flow.
All lenders have to make affordability checks to ensure you can make the monthly payments. If you have no income currently, there are a few situations where they may still consider you:
- Are self-employed and don’t have a long trading record but can show future earnings and have an accountant who will put this into writing
- Are starting a new job with an income in the near future
- Are the owner of a company with profits but choose not to draw them so have little personal income – you then need a lender who will accept your share of the retained profits as proof of income
Lenders always look at each case individually so just because you have no income, but the situation may change, it is worth talking to a broker for them to approach companies they know might consider it.
Limited liability partnership mortgages
A limited liability partnership or LLP lets you be in a business partnership without risking your own assets. For tax purposes, an LLP doesn’t pay corporate tax and instead, partners are counted as self-employed, so they need to prove their income just the same as other self-employed people.
Some lenders may require 3 years accounts while others may be happy with as little as 1-2 years. Occasionally, some will work with 12 months or less. If you are looking for buy to let mortgages for your LLP, then these are also available through specialists and many of the criteria are similar to a buy to let mortgage for an individual.
Trust income mortgages
A trust is usually created to manage assets including money, investments or property. If you need to look at a mortgage when your income comes from a trust, the first thing to know is if the trust has the authority to borrow money for a trust fund income mortgage.
A trust income mortgage is a great way to get a child onto the property ladder and save money on rent. It is also a good way to reduce capital gains tax and inheritance tax so is a sound financial decision. You will have to have a trustee to manage the trust and the income for the mortgage. This is someone who manages the trust for the benefit of someone else.
Some lenders are a little cautious about trusts because of a lack of personal liability so if you use this option, you may need someone to act as guarantor for the debt.
Is trust income suitable for a mortgage?
If you are receiving regular income from a trust, then many lenders will consider this as part of your mortgage application. Some will take 100% of trust fund income although there is usually the need to show tax returns for the last three years. Other factors will still play a part including the level of income, ability to service a mortgage, amount of deposit and credit history.
Apprenticeships are known for a low rate of pay as companies see the apprentice as an asset for the future rather than a full member of the team. But there are lenders who will consider it. Factors they will consider include:
- The basic wage or salary (some have a minimum)
- Overtime or bonuses paid
- Job security – is the apprentice likely to get a full-time role at the end of the apprenticeship?
- Amount to borrow
- Amount of deposit – this has to be at least 5% or more if you have bad credit
- If parents or family can help financially – including being a guarantor or helping with the deposit
Trainees will often be viewed in a similar way and some lenders will consider them for mortgages.
An NHS bursary is paid each month to students to help with living costs and tuition fees. These payments are not affected by income tax or national insurance, so all of the money is available in most cases. Lenders will consider a bursary in some situations and will look at factors such as:
- The amount of the annual bursary
- If you are entitled to Disabled Students Allowance
- Any additional income such as part-time work
- Will you get employment once the bursary ends?
- How much deposit you have?
- If you have help financially or as a guarantor from family
If you are a business owner or company director, it is common to be paid a relatively low salary then a divided. If you are paid in this way, you should be able to get a mortgage that takes into account your dividend as income. The normal affordability criteria will apply.
Some lenders may take into consideration retained profits on your application and this means you can often borrow more than you think.
Mortgages on benefits
There are a number of factors that play into whether you can get a mortgage when you are on benefits. There are companies that will consider it, depending on what benefit you receive. Some of the most commonly accepted are:
- Child tax credit
- Working tax credit
- Child benefit
- Disability living allowance
- Incapacity benefit
- Attendance allowance
- Pension credits
- Widow’s pension
- Carer’s allowance
If you are on benefits, you can’t usually get help to buy a home but if you already own a property, then you may get help with mortgage interest as part of your benefits.
Some lenders will consider pensions of Disability Living Allowance as income while others may not. A broker will help you find the right lender for your situation. Some may consider if you are receiving unemployment benefit as well. Some lenders consider all of the income from tax credits while others will cap it at 60%.
If you are receiving maintenance, then some lenders will consider this as income. There will need to be a history of payments and often a court order in place to ensure the money. The age of the children may also play a part.
No income verification mortgages
If you have income but no way to verify it, there may be some lenders who won’t consider you but there are those who will. Work with a broker to go through the details and find the right lender for your situation.