Lenders can consider investment incomeIncome received from investments. More – such as dividends, rental profit and returns from a portfolio – towards a mortgage, but they usually want to see that it is sustainable. In practice that means two or more years of evidence and, for variable sources, an averaged and sometimes reduced figure.
What counts as investment income?
“Investment income” covers several different sources, and each is assessed in its own way:
- Dividend income – typically from a limited company you own or from shareholdings.
- Rental profit – the net income from buy-to-let or other let property.
- Portfolio returns – income from shares, funds and similar investments.
- Interest and trust income – where relevant and evidenced.
How lenders view sustainability
The central question a lender asks is whether the income is likely to continue. A steady, evidenced track record is treated very differently from a one-off gain or a highly variable return. This is why lenders tend to average investment income and apply a cautious view to sources that jump around from year to year.
Dividend income
For limited-company directors, dividends are usually assessed alongside salary. Lenders generally want to see SA302s or tax-year overviews together with company accounts, so they can confirm both the level of dividends and that the company can sustain them.
Rental and portfolio income
Rental profit is normally evidenced through tax returns and tenancy agreements, while portfolio and investment returns are averaged over recent years. Some lenders cap the proportion of total income that can come from investments, so the mix of your income matters as well as the total.
Evidencing investment income
Have your paperwork ready: SA302s and tax-year overviews (typically two to three years), company accounts, dividend vouchers, rental statements, and an accountant’s certificate where one is available. Consistent figures across these documents make the application far smoother.
Getting advice
Independent, FCA-regulated advice helps you present investment income in the way lenders accept and identify those comfortable with it. Our advice is no-obligation – you can read more about Damian Youell or visit our mortgage advice hub.
How lenders average and reduce variable investment income
The single biggest thing to understand about investment income is that lenders rarely take last year’s figure at face value. Because dividends, rental profit and portfolio returns can rise and fall, an underwriter’s job is to work out a figure they can rely on for the whole term of the mortgage, not just the best recent year.
Averaging over two or three years
Most lenders take the average of the last two or three years of evidenced investment income rather than the latest year alone. If your most recent year is higher than the one before, expect the lower average to be used. If the latest year is lower, some lenders will use that lower figure instead, on the view that income appears to be falling. Keeping your figures moving steadily in the same direction, rather than spiking, tends to give the strongest result.
Why some income gets a “haircut”
For sources seen as less predictable, a lender may only count a proportion of the income – often somewhere between half and three-quarters – or cap the share of your total income that can come from investments. Dividends drawn from a company with strong, stable accounts are usually treated more generously than portfolio returns that swing with the markets. This is exactly why the underlying paperwork matters: consistent accounts and tax calculations let an adviser point you towards the lenders who treat your particular mix most favourably.
Timing your application
Because the figure hinges on your last completed tax years, the timing of your application against your accounting dates can change the numbers a lender sees. If a strong year has just closed and been filed, it may be worth waiting until that return is available before applying, so the better year counts towards the average. An adviser can help you decide whether to apply now or wait.
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