Complex Income Mortgage

What is considered as complex income with mortgage applications in the UK?

Basically, it’s anything that isn’t standard. If you’re just on a standard PAYE income, it’s nice and easy. But once we get outside of that, it can become complex and won’t fit an automated system, for example.

I would certainly describe self-employed income as complex, whether you’re a sole trader, in a partnership, or a limited company director with dividends or even retained profits.

On the PAYE side, there can be commissions and bonuses, which are not necessarily regular sources of income, so they are looked at differently. Seasonality of income can sometimes be complex, and so are multiple jobs, contractual work or zero hours contracts.

It could just be that you earn a higher income – which can come with high base pay, but also very large bonuses. Just the size of those irregular parts to the income puts that in the ‘complex’ bracket.

How do lenders assess different complex incomes? How do they impact the mortgage assessment process?

If you’re self-employed, most lenders look for two years’ proof of income, via tax calculations (formerly SA302s), your accounts or an accountant’s reference. Some still want three years’ figures. One or two look at one year, but the choice of lenders there is quite limited.

We could also look at dividends and retained profits within self-employed income, still based on two years’ accounts. Usually the two years’ figures are averaged when it’s an upward trend. If it’s a downward trend, most lenders just use the most recent year.

Or, you might receive a PAYE salary with irregular elements like bonuses and overtime. Although overtime is irregular, it tends to appear every month. Most lenders therefore look at a three or six month average. Any commission received monthly will be the same.

Bonuses are different, and it depends on the frequency with which they’re paid – quarterly, half-yearly, or annually. Most lenders want a record of two of those, if they’re not monthly. With quarterly bonuses, they may look for three or four. Certainly, more than one is required.

Another key area is contractors, who can be PAYE or self-employed, but if you’re on a day rate contract over a certain value, lenders tend to use a different formula. They use that day rate over five days a week and 46 weeks of the year.

You don’t need a two-year history for that, if your contract’s long enough. They assess it on the day rate rather than your past track record.

What documentation and evidence do I need to provide to prove my complex income?

Let’s start with the self-employed – sole traders, partnerships and limited company directors.
The majority of lenders look at your tax calculations, formerly known as SA302s. They also want the tax year overviews to match those to see what you earn and that the tax was paid.

Some lenders may go above and beyond that, so be prepared to produce the accounts – certainly for partnerships and limited companies. They may even ask for business bank statements. I’ve sometimes had lenders ask for dividend vouchers, but that’s rare. If you receive a director’s salary, they may ask for the payslips for that.

Contractors will certainly need a copy of the contract, and lenders might request previous contracts. They may also want evidence of that money coming in via bank statements, whether that be into a personal or limited company bank account. If invoices are issued, they may want to see copies of those as well.

With PAYE that has irregular elements, payslips are the normal requirement, and it varies how far lenders want to go back. They may also ask for a P60, depending on the time of year. A P60 is useful in April, May or June, but it’s too old by December or January.

Other income where you need evidence would be rental incomes. Some lenders might take your profit on land and property, but often we have to prove the rental income just so that a Buy to Let is ignored within affordability. Again, we may need bank statements showing the rent coming in, possibly a tenancy agreement or letting agent documents showing the receipt of rental income.

What challenges might arise during the mortgage application process when declaring complex income?

A limited track record is always a challenge. If somebody has been self-employed for eight or nine months, that’s very difficult. A year is still difficult, but not out of the question.

Also, inconsistencies can be a problem. Perhaps your last quarterly bonus was £1,000, but the three before that were £4,000. A lender might be concerned that it has dropped, and not count the higher ones.

Another challenge would be lenders’ different interpretations of things, and what they can or can’t do. The high street alone varies a lot. Not every lender is going to lend you the same amount of money even if your income is obvious.

One lender might be great for day rate contractors but terrible for sole traders. Or they might not lend you anything because they just don’t like that area of complex income.

It might also take a bit longer to get through. There’s definitely more work involved on a mortgage with complex income than for something straightforward, where the lender’s computer just says yes.

How do I improve my chances of getting approved for a mortgage with complex income?
There are definitely things you can do. Prepare those documents early, whether it be payslips, P60s, your contract or invoices.

If you’re self-employed, get your accounts done early. Once we go past the end of September, lenders will want the tax documents that end in April that same year – even though HMRC won’t need that tax return until the end of next January.

A lender won’t use proof of self-employed income that’s 18 months out of date. After year end, they give you six months to prepare your accounts, after which you need the latest figures.

For anyone self-employed, a helpful accountant is worth their weight in gold. If references or new documents are required, some will go the extra mile to help their customers. Others just don’t help at all. They just see their job as to produce the accounts and not to help their client get a mortgage.

Finally – and obviously – use a broker that knows how to look at complex incomes. If you try and do this on your own, there’s a good chance you might fall over.