In this brief guide, we are going to answer the question “what do mortgage lenders look for on tax returns”.

When you apply for a mortgage, a mortgage lender is bound to ask you to provide supporting documents alongside your mortgage application before they will give you a mortgage offer.

One of these supporting documents will be your tax returns.

If you are self-employed then your tax return documents will be very important in proving the reliability of your income to the mortgage lender.

Why do mortgage lenders ask for your tax return?

Mortgage lenders ask for your tax return as it helps them to understand how your income is generated, what your after-tax income is and the reliability of your income.

By looking at your tax return the mortgage lender will be able to determine how much disposable income you have at the end of each month and use this to understand if you can afford to make the monthly mortgage repayments as required.

The mortgage lender will usually request up to 3 years worth of tax returns to see how your financial life has fared over those years.

To save time on your mortgage application you should look to get these documents well ahead of when you intend to make your mortgage application.

Depending on what the mortgage lender finds on your tax return documents, the mortgage kinder could request additional information such as a profit and loss account if you are self-employed, information on any bonuses or commission which you receive.

What do mortgage lenders look for on tax returns?

Mortgage lenders will usually look at your tax return in order to validate the income amount you have stipulated on your mortgage application is the same as what your tax return displays.

A mortgage lender will also look at your tax return in order to ensure that any supplementary income such as any bonuses, tax credit etc are exactly what you have put down.

The mortgage lender will also look on your tax return to see how frequent any bonus, commission or overtime payment is.

Another key thing a mortgage lender will look for on your tax return is the stability of your income. 

The mortgage lender will look to see how stable your income has been.

If your income has fluctuated over the years then this may be a cause for concern and you may want to discuss this with your mortgage broker.

You should remember that the way income is looked at will depend on how your working relationship is with your employer.

If you are self-employed or part of a partnership then you can expect the way your net profit is looked at to be different.

If you are self-employed you will need to submit an SA302 tax calculation.

What is an SA302?

An SA302 tax calculation is a summary of a self-employed person’s income for the tax year (from April 6 to April 5).

The SA302 tax calculation is the amount of income you have declared to HMRC and essentially gives mortgage lenders an overview of what your net income is per month.

This allows the mortgage lender to calculate how much you could afford in monthly mortgage repayments each month.

Mortgage lenders are required to ensure you can afford the monthly mortgage repayments due to the Mortgage market review.

What information does the mortgage lender view on the SA302?

The SA302 tax calculation is a high-level overview of the information you have provided to HMRC on your tax return. It states the amount you have to pay HMRC for the relevant tax year.

Your SA302 tax calculation shows the income you have declared to HRMC from all your sources of income.

Thus could be dividends, partnerships, sole trader or from a limited company.

The personal allowance you are entitled to and the total income you made for the tax year is also visible on your SA302 tax calculation.

Your SA302 tax calculation also shows the amount of income tax and national insurance contributions you need to pay to HMRC for the tax year.

How to print your SA302 tax calculation?

To print your SA302 tax calculation you should go on the HMRC website where you can print 4 years worth of SA302 calculations.

You should ask the mortgage lender how many years worth of SA302 calculations they require before you begin printing these, in the interest of the planet.

If you are getting your SA302 calculation before you make your mortgage application then you may want to get the maximum of 4 years worth of SA302 calculation available through the HRMC website.

There are various ways to get your SA302 tax calculation and these are all dependant on how you submitted your SA302 tax calculations.

If you submitted you SA302 tax calculations online then you will be able to print our your SA302 tax calculations online.

If you have submitted your SA302 tax calculations using any software then you will be able to print your SA302 calculations using the same software.

If you have submitted your SA302 calculation using an accountant then you will need to contact them to get copies of your SA302 calculation. 

Some mortgage lenders will not accept a printed out SA302 tax calculation and you may need to contact HRMC to get an original SA302.

You will also not be able to print out an SA302 calculation if you have not completed your SA302 online but instead sent it via post.

You can request your SA302 by calling the HMRC Self Assessment helpline on 0300 200 3310, or by writing to Self Assessment, HM Revenue and Customs, BX9 1AS, quoting your National Insurance number and Unique Taxpayer Reference (UTR). You should allow up to two weeks for the tax calculation to arrive, so it is important to take this into account when considering mortgage application timescales.

Thinking of getting a mortgage? Use a broker

You may want to consider using an independent mortgage broker to get a mortgage.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

In this brief guide, we are going to answer the question “what do mortgage lenders look for on tax returns”.

If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.