This article is the third in a series that uncovers how banks think. Be sure to read or watch the other two on how banks think about interest rates and your expenses as well.
A word of caution
Although this article focuses on what banks think of different income types, keep in mind, no matter the income type, you’ll need to have the amount of income that shows you can afford the mortgage you’re applying for to get an approval.
Now let’s get into it.
PAYE
PAYE income from permanent employment is the type of income that banks love to give lending to. They see it as the most reliable. In their minds, even if you lose your job you can most likely get another one and not have much disruption to your mortgage repayment schedule.
If you’ve got a permanent PAYE job, you can feel secure that the type of income you have is just what the bank is looking for.
Self-employment
Banks are careful to lend to people who have self-employment income, but they will if you can show a track record of the income you need to afford the mortgage you’re applying for.
They will look closely at the last 2 years of financial records to see that your taxable income meets their criteria. For this reason, you might need to ask your accountant to decrease your business expenses, if you’ve been trying to maximize your tax savings, so your taxable income increases.
Contractors
Your history as a contractor is what is most important to the bank. If you have a brand new contract and it’s your first in that industry, you’ll need to wait until you have more time in the industry to show that you have stability.
However if you’ve been working in a similar position for a few years, even if it’s been PAYE previously and you are new to contracting, banks are happy to lend because you’ve shown a stable history in that position.
Casual
No matter the circumstance, casual income is not preferred by the banks, and you’re unlikely to get lending with this type of income.
If you’re wanting to purchase a house and you think the amount of casual income you have might meet affordability criteria, it’s best to ask your employer for a permanent PAYE employment agreement.
Overtime
If you have regular overtime, most or all of it can be used to boost your income. Make sure you disclose to your mortgage adviser that you have overtime income to see if it will help your chances of an approval.
Keep in mind this article provides general information and not individual financial advice.
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