Lending Criteria – Employment & Income
Employment Criteria
Cases which do not meet the criteria listed below will be considered by the Society on their individual merits. The applicant must be paid in Sterling (GBP) and hold a UK bank account, with the exception of Ex Pat applicants. Please refer to BTL – Employment and Income for additional criteria for these applicants Please note earned income will NOT be taken into account for RIO, the mortgage is based on retirement income, income from investments and rental property only. These are evidenced via tax assessments.
Income Type | Criteria | Proof Required | What we Can Use |
Employed | Applicants must have been continuously employed for at least 12 months on a permanent contract. Bonus/overtime/commission payments are acceptable. | Latest 3 months payslips or equivalent if paid weekly* and most recent P60. In addition to the above, payslips showing receipt of the additional payment/s are required and the number will depend on the frequency of the payment/s received: Weekly – an employment reference will be requested to confirm payments received for the preceding 12 months. Monthly - 12 months’ payslips each showing the additional payment received. Quarterly – The 4 payslips that show the bonus payments to cover a 12-month period. Half yearly - The 2 payslips that show the bonus payments to cover a 12 months period. Annual - 1 payslip. An employment reference can be requested in place of the payslips if preferred. | 100% of basic salary 100% of guaranteed contractual shift allowance 100% of guaranteed overtime 100% of guaranteed bonuses 50% of regular overtime* 50% of regular bonuses** 50% of regular commission** 50% of regular shift allowance *Overtime/bonus/commission can only be used if the applicant has been with their current employer for more than 12 months. **50% bonus/commission earnings cannot exceed the annual basic salary. |
Fixed Term Contract | Applicants must have been continuously employed on a fixed term contract basis for a minimum of 18 months in the same line of work. There must be at least 6 months remaining on the current contract. Contracts are acceptable directly from the company for which the employee is providing services and not via a third party | Latest 3 months payslips or equivalent if paid weekly*; and Current and previous contract. | 100% of basic salary |
Zero Hours Contract | Applicants must have been continuously employed for at least 12 months with the same employer. They must have a contract of employment in place. Not acceptable on an Interest Only Basis. Not acceptable for Near Prime applications | Latest 6 months pay slips or equivalent if paid weekly*; and Contract of employment. | 100% of average pay (calculated by dividing the total 6 months income by 6, and multiplying by 12 to give an average annual income) |
Bank Hours (applies to NHS professionals only e.g. doctors and nurses) | Self-employed for a minimum of 2 years Not acceptable for Ex Pat lending | Latest 2 years audited/certified accounts: and Latest 2 years tax calculations and tax overviews; and Accountants reference (this will be requested by the Society); and The latest 6 months business bank statements (to identify whether the business income has been affected by covid/lockdown) | The average of the last 2 years net profit; or The average of the last 2 years tax calculations, whichever is the lower. Note; if the latest years figures are lower than the average, the lower will be used. Declining profits are not normally acceptable. Applicants with 1 years accounts will not be accepted. |
Agency workers | Applicants must have been continuously employed for at least 12 months with the same agency and have a contract of employment in place | Latest 6 months payslips and an employment reference from the agency | 100% of average pay (calculated by dividing the total 6 months income by 6 and multiplying by 12 to give an average annual income. |
Self-Employed | Self-employed for a minimum of 2 years Not acceptable for Ex Pat lending | Latest 2 years audited/certified accounts: and Latest 2 years tax calculations and tax overviews; and Accountants reference (this will be requested by the Society); and The latest 3 months business bank statements (to identify whether the business income has been affected by covid/lockdown) | The average of the last 2 years net profit; or The average of the last 2 years tax calculations, whichever is the lower. Note; if the latest years figures are lower than the average, the lower will be used. Declining profits are not normally acceptable. Applicants with 1 years accounts will not be accepted. |
Company Directors <25% shareholding | Applicants will be treated as employed and will be subject to the same criteria as an employed applicant. | As employed. | As employed. |
Company Directors with >25% shareholding | Applicants will be treated as self-employed and will be subject to the same criteria as a self- employed applicant. | As self-employed. | As self-employed. |
Second Job | Applicants with income from a second job may be considered either on an employed or self-employed basis, provided this has been held concurrently with the main job for a minimum period of 12 months for employed and 24 months for self-employed income. The total hours for both jobs cannot exceed 50 hours per week No overtime can be used for either job. | As per employed/self-employed/company directors. | Both jobs on employed basis: 100% of basic pay from both jobs. Combination of employed and self-employed basis: 100% basic pay plus as per self employed criteria. |
Car Allowance | Applicants car allowance must be confirmed as a guaranteed feature of employment | Latest 3 months pay slips or equivalent if paid weekly* | 100% of car allowance |
Large Town Allowance | Applicants large town allowance must be confirmed as a guaranteed feature of employment | Latest 3 months pay slips or equivalent if paid weekly* | 100% of Large Town Allowance allowance |
Acceptable Other Sources of Income
Please see references to other sources of income in the following table:
Income Type | Criteria | Proof | What we Can Use |
Retirement Income - State Pension | Applicants must be in receipt of state pension income. | A letter from DWP confirming pension amount | 100% of state pension |
Retirement Income - Private/ Occupational Pension | Applicants must be in receipt of private/occupational pension income. | A statement from the pension provider confirming pension amount | 100% of private and occupational pension. 4% of Self-Invested Personal Pension (SIPP) value (used as annual income), a minimum fund value of £100,000 is required. |
Benefit Income | Income derived from benefits may be considered where it is not the sole income and where earned income is a minimum of £10,000. The amount of benefits received cannot exceed the earned income. | A letter from the relevant department/benefit provider confirming the level of benefit income | A maximum of 50% of the following benefit types is permitted: Child Benefit Child Tax Credit Working Tax Credit (or equivalent stated under Universal Credit) Disability Living Allowance (DLA) Disability Income Support |
BTL Rental Income | The BTL property must have been rented out for at least 2 years The income must have been declared using Self-Assessment tax returns. | Latest 2 years tax calculations and tax overviews. AST for each property. Latest 3 months bank statements to show rental income. | An average of the last 2 years tax calculations or the latest years figure if this is lower. |
Investment Income | Applicants must have been in receipt of the income for at least 2 years The income must have been declared using Self-Assessment tax returns. | Latest 2 years tax calculations and tax overviews. Most recent statement from the provider confirming the total fund value | An average of the last 2 years tax calculations or the latest years figure if this is lower. A maximum of 4% of the fund value can be used for income purposes. |
Maintenance Income | Only maintenance income which has been awarded as part of a Court Order can be considered. Payments awarded in respect of children | A certified copy of the Court Order. Latest 3 months bank statements showing maintenance payments. | 25% of the amount stated in the Court Order. |
Maternity/ Paternity Income | If an applicant is on maternity leave and the mortgage will complete before their return to work, affordability will be based on the lowest income received during their leave. If they can provide evidence of savings equating to their net monthly income for the period of leave, we will base affordability on their salary upon their return to work. | Latest 3 months pay slips or equivalent, if paid weekly, and a reference from the employer confirming the return-to-work date and salary. Latest savings statement if applicable. | The salary as stated in the employment reference where the applicant can evidence sufficient savings equating to their net monthly income for the period of leave OR the lowest amount of pay, usually SMP, that will be paid during the leave. |
Approved Accountancy Bodies
Accountant’s certificates should be prepared by an Associate or Fellow of an approved accountancy body:
- Association of Accounting Technicians (AAT)
- Association of Authorised Public Accountants (APA)
- Association of Chartered Certified Accountants (ACCA)
- Association of International Accountants (AIA)
- Chartered Institute of Management Accountants (CIMA)
- Chartered Institute of Public Finance & Accountancy (CIPFA)
- Chartered Institute of Taxation (CIOT)
- Institute of Chartered Accountants (ICA)
- Institute of Financial Accountants (IFA)
- Fellow of Chartered Accountants (FCA)
Affordability
The amount we will lend is based upon an applicant’s income and expenditure. The Society uses The Office of National Statistics (ONS) data to determine some areas of spending and this is based on household composition and the geographical area of the property.
We will also review your Credit Report and Bank Statements to ensure all expenditure has been included. Adjustments will be made where necessary e.g. if additional expenditure is noted such as gambling transactions.
A stressed mortgage rate is applied in calculating affordability other than where the mortgage rate is fixed for 5 years or more.
Whilst affordability is the overriding factor when assessing a mortgage, income multiples are used as a guide. The maximum is 5 x joint income, however the Higher Lending Insurance provider, which covers loans in excess of 80% LTV , has lower limits and cases exceeding their limits have to be approved by them.
For all Consumer/Regulated BTL applications and those Standard BTL applications where the rental income (confirmed by the valuer) does not meet the rental criteria a full affordability assessment is required. BTL – Applications based on affordability.
There are specific requirements for RIO applicants RIO – Affordability <– Back
Income Multiples
Basic income multiples (for guidance purposes)
|
Basic income multiples (for guidance purposes) |
|
| Single | Income x 5 |
| Joint | Joint income x 5 |
Financial Commitments
The monthly commitments and balances outstanding in respect of the following should be declared on the application form and IAA form:
- Bank Loans, Hire Purchase, Car Loans, Student Loans, Second Mortgages, Buy to Let Mortgages, Child Maintenance, car lease agreements, CSA payments, nursery education, education fees or any other financial commitment.
- For credit cards, store cards and mail order accounts 3% of the current balance will used as the monthly commitment.
- Commitments can be ignored in the affordability calculation if there is less than 3 months to run.
Gambling
Gambling transactions will be taken into account for affordability. Bank statements will be checked and an average of the amount gambled over the last 3 months will be used. Additional bank statements may be requested at the underwriter’s discretion. <– Back
Proof of Mortgage/Rent Payment
The conduct of Mortgages/Loans (secured/unsecured) are checked against Credit Bureau information for the last 2 years. Where this cannot be evidenced mortgage statements/bank statements to cover this period will be required. The conduct of tenancy agreements will be checked using the latest 12 months bank statements and/or a tenancy reference. <– Back
Background Properties/Buy to Lets
Background properties/buy to lets are not permitted for shared ownership lending. Applicants must have no more than 3 BTL properties (per application). The following will apply: Background BTL will be treated as self-funding where:
- There is at least 3 months rental history (AST and bank statements showing rental income required) AND
- The rent received is equal to or more than the stressed mortgage payment (e.g. £100,000 x 5.5% x 145%)
If an existing BTL is let on a HMO basis the rent will be evidenced via tax assessments. The expenditure associated with a Background BTL will be included in affordability if:
- There is no rental history (if this applies the stressed mortgage payment will be used for affordability, but no rental income taken into account) AND/OR
- There is a shortfall between the rent received and the stressed mortgage payment. The shortfall amount will be included for affordability.
Background BTL The mortgage at the current pay rate will be included for affordability <– Back
Lending in Retirement
Lending in retirement is where all borrowers are a minimum of 60 years old, have already retired, and the only source of income is retirement income and that derived from investments, including rental property. The maximum LTV is 70%. Lending into Retirement Lending into retirement is where the mortgage term goes past the age of 70 for either borrowers. The maximum term is 40 years. The maximum LTV is 80%. <– Back
Useful Information
- Lending Criteria Home
- Lending Criteria - Applicant
- Lending Criteria - Property
- Lending Criteria – Loan Criteria
- Lending Criteria - Loan to Value
- Lending Criteria - Buy to Let
- Lending Criteria - Shared Ownership
- Lending Criteria - RIO
- Lending Criteria - Further Advance
- Lending Criteria - Self-Build
- Lending Criteria - Custom Build
