It is typically more difficult to get a mortgage without having income from a traditional source, such as full-time employment. But, it is possible. Here, our advisers explore various options for those with alternative incomes to successfully obtain a mortgage.
What is alternative income?
Alternative income refers to earnings that do not come from full-time employment with a single employer. Lenders often view alternative incomes as higher risk due to their perceived instability.
Who has alternative income?
Alternative incomes are becoming more common and include various situations such as:
- Self-employed individuals
- Limited company directors
- Sole traders
- Temporary or part-time workers
- Zero-hour contract workers
Income can also include different sources, such as investments, rental income, bonus payments, government benefits or child maintenance. Or, it may come from multiple sources (complex income).
How to qualify for a mortgage with an alternative income
- Provide extensive details
When you don't have a traditional income, lenders will require more detailed information to assess your financial stability and minimise their risk. They will seek comprehensive documentation, including thorough record-keeping, tax returns and credit reports to gain a clearer understanding of your financial situation.
- Prove consistent income over a longer time frame
One key factor in securing a mortgage with alternative income is demonstrating a consistent earning history over an extended period. This proves to lenders that your income is stable and reliable. For example, limited company directors typically need to show at least two years of income while sole traders can significantly improve their chances with over 12 months of consistent earnings. The longer you can demonstrate stable income, the lower the risk perceived by the lender.
- Improve your credit score
Improving your credit score can take time, with paying bills on time being the most effective way to ensure a good rating. However, there are also simpler steps you can take, such as registering to vote and using a credit card responsibly, to help boost your credit score.
- Increase your down payment
A larger deposit reduces the mortgage amount needed, thereby decreasing the lender's risk. By maximising your down payment, you can enhance your chances of obtaining a mortgage with an alternative income.
- Get an Agreement in Principle (AIP)
An AIP shows how much a lender might be willing to lend you based on your financial situation, providing a clearer picture of your borrowing capacity without affecting your credit score. It serves as a stepping stone to acquiring a mortgage and demonstrates to lenders that you are a serious applicant.
- Look into specialised lenders and private banks
Specialised lenders cater to individuals with alternative incomes, increasing the chances of securing a loan. Our advisers can match you with the right lenders for your specific alternative income situation. Additionally, private banks may offer higher-risk mortgages, making them another viable option for those with alternative incomes.
Connect with our advisers for specialist advice.
