Income Verification
Lenders verify income using the documents you submit — payslips, SA302 forms, bank statements, and P60s. They do not simply take your declared figure at face value. For employed applicants, basic salary is accepted in full; overtime, bonuses, and commission are typically averaged over three to six months or discounted by 25–50% depending on how regular and predictable they are.
Self-employed applicants are assessed on their net profit after business expenses (for sole traders) or salary plus dividends (for limited company directors). Most lenders use an average of the last two years; if income is rising, some will use the most recent year. If income has fallen year-on-year, lenders typically use the lower figure to be conservative. Retained profits sitting in the company are generally not included in the affordability calculation unless drawn as income.
Additional income sources — rental income, maintenance payments, pension income, benefits, and investment income — may be accepted by some lenders and not others. Rental income is usually accepted at 70–80% of the gross amount to allow for void periods and expenses. Your broker will know which lenders will give you the most credit for your specific income profile.
Expenditure Review
Lenders examine your bank statements to assess your expenditure. They categorise spending into essential commitments (mortgage, secured loan, council tax, utilities), minimum debt repayments (credit cards, personal loans, hire purchase), and discretionary spending (subscriptions, dining, entertainment). The aim is to arrive at a realistic picture of your net disposable income — the money left each month after all essential and committed outgoings.
Regular payments to gambling websites, payday lenders, or debt collection agencies will be noted and will raise questions. Persistent overdraft usage near the end of each month suggests cash-flow stress. These do not automatically result in a declined application, but they may prompt the lender to request an explanation or reduce the amount they are willing to advance.
Lenders use a combination of your actual bank statement figures and their own minimum expenditure benchmarks (based on household size and location) to construct an income-and-expenditure schedule. If your actual declared expenditure is significantly below the benchmark, they may use the higher figure to ensure a conservative assessment. Being broadly accurate about your monthly spending avoids discrepancies that can slow the underwriting process.
