We’re not going to lie, when we have a client who is permanently employed with a straight forward basic salary and straight forward contracted working hours, we do let out a small and quiet sigh of relief. Not because we can’t help with more complicated income sources! In fact we are experts in out of the ordinary employment or self-employment types, but generally the more straight forward the income, the quicker the mortgage goes through. However, things aren’t always so easy and there are potential mortgage issues for employed people too that everyone needs to be made aware of.
In this blog, we are going to explore some of the issues that can arise when an employed individual goes through the mortgage process and how we, as professional and experienced mortgage advisors, navigate these issues so that you get the best mortgage journey possible.
What Do Mortgage Lenders Need From Employed People?
So as well as the usual proof of identification and proof of deposit that lenders ask of everyone, lenders normally want to see a few documents from an employed person to prove their income:
- Three months worth of pay slips
- Latest years P60
- 3 months bank statements
The pay slips are perhaps the most important part of the entire employed mortgage application as these will show exactly how much you earn and are proof to the lender that you are no inflating your income. Lenders normally ask for 3 months pay slips because this is a good number of months for them to compare your income and make sure there are no fluctuations or discrepancies. Sometimes if lenders are very confident of your income, they may only ask for your last months pay slip.
The latest years P60 is another important document however not all lenders require it. The P60 is a documents sent to you every financial year by HMRC which shows how much income you received from your employment for the previous 12 months and how much tax & national insurance you paid. Lenders use this to make sure that the annual salary you have declared in your application matches up against the p60 and payslips. Also, if you receive any extra income like bonus or commission, they can use the p60 to determine how much you received on top of your basic salary.
Three months bank statements is a standard amount of bank statements that the majority of lenders will ask for. In employed individuals applications, the lender looks at your bank statements over the last three months to make sure that there is a consistent income coming into your bank account every week or month from your employer and make sure that these figures match with your payslips. Ensuring that there is no fraudulent activity or inflation of income.
Mortgage Issues For Employed People
If you have been in the same job with the same employer for several years without any major changes, this is a mortgage underwriters dream! However, if there have been any changes in your employment recently, this could be a stumbling block for some mortgage customers.
One of these issues could be starting a new job:
If you have recently (less than 3 months) started a new job with a new employer, some lenders will say that they need you to have been in your current job for a minimum of 6 months, meaning that if you had to go to one of those lenders, you may need to delay your purchase by 3 months or more. Some lenders are not as bothered about the length of time in a job as long as you can provide some proofs.
With these lenders, they may ask you to provide 1 month pay slip, a contract of employment showing the full details of your job and salary or they may just ask for a reference from your new employer. At Oportfolio we have access to over 90 different mortgage lenders who have different criteria regarding proof of income and new jobs so it is our responsibility to find the best lender for you when it comes to it.
Another issue is people who do receive heavily bonus/commission/overtime based incomes:
Over the years, we have helped hundreds of clients who work in professions such as sales who’s income is heavily dependent on bonuses or commission. Because a bonus or commission isn’t always guaranteed, a lot of lenders will need to see strong and consistent proof of this extra income and even then, some lenders will only take 50% of the extra income into account. Variable income is treated differently by different lenders.
Some may want to see 12 months worth of pay slips, some may want to see 1 or 2 years P60s or some other type of income proof. Because we have so much experience with helping clients in this predicament, we are able to help navigate our clients to the right lenders who’s criteria is more beneficial for them and who are more understanding of variable income.
Recent pay rises can actually cause an issue:
You might think that a pay rise would only work in your favour when getting a mortgage however, this is not always the case. Mortgage lenders want to see consistency, something that they can track and audit, that’s why they ask for 3 months pay slips. If you have recently received a pay rise, sometimes the lender will want to wait until you have received at least one pay slip with the new salary which could delay your application.
Fortunately, there are a lot of lenders that are very understanding about pay increases and will be able to accept things like a copy of your new contract or an official letter from your employer detailing your new salary increase and when you are likely to receive it.
Another issue could be when an employed individual progresses so much at work, that they are promoted to a partner:
Being an employed person and getting promoted to a partner in the firm you work for is an incredible achievement for most and shows your ability and determination however, mortgage lenders will ultimately change the way they look at your income and this can sometimes be an issue. This is common for individuals such as solicitors or large corporations.
Whereas you were originally an employed person at the firm receiving a salary and month pay slips, partners are often awarded a share of the company as well as a salary and to some mortgage lenders, they will treat you the same way as they would a self-employed person. Meaning, that as well as your pay slips, they will also want to see your tax calculation and overview documents to prove how much extra income you have received and how much tax you have paid.
If you have not been receiving this extra income for a year or more, this is where the issue can be. Some lenders are much more understanding of the employment type and will ask for other documents such as letter from your employer or your employers accountant showing how much income you receive. As we have many clients who have gone from solely employed to a partner in a business, we know which lenders to go to.
We believe that these are the main issues that can potentially crop up with employed people when they are getting a mortgage however, if you have Oportfolio on your side, we can help you navigate through these issues so that you can achieve the mortgage you need!
If you or anyone you know is interested in getting a mortgage and are concerned about the way they are employed, feel free to give us a call to see how we can help.