Why do lenders need proof of income...

LizEstelle

Gorgeous_George wrote:

I assume the OP's income is illegal or from a dubious occupation.
GG

Then you assume wrongly and I shall pay no further attention to your offerings as they clearly come from a unpleasant and impolite source.

I have my reasons for posting the thread and they remain MY reasons.

I have asked what seems to me to be a very valid question. If there's no clear answer except the fairly obvious one, namely that lenders are pathetic and simply can't be BOTHERED to check anything except payslips, then that's all there is to it.

As a newcomer on here, I certainly wasn't expecting hostility and outright slurs.

madauri

Liz, imagine that a stranger wants to borrow a large amount of money from yourself. You do not have proof that he earns any money at all, therefore you do not know whether he will be able to pay you back. What you do know is that he spends money regularly.

Would you lend him the money?

AndrewSmith

As I said it's not really a case of what we think or like/dislike.

If the lender asks, you have to give. They have to check that you are legitimately receiving income and that the money you have does not come from terrorist or illegal activities etc. Not only that they will check that you exist and are actually employed via your NI number shown on your payslip.

They have to demonstrate that they have made every attempt to evidence responsible lending.

If, for whatever reason, you do not want to or cannot disclose the source of income streams then I am afraid, even if you were self certifying your income, no lender will lend to you.

homer_j_3

Hi

I understand what you are saying about payslips not being a "guarantee" that anybody can maintain payments on a mortgage.

I feel therefore your logic would also mean that just because your current bank statements have no "guarantee" that you can maintain future payments on a mortgage.

I think what GG is trying to say is that whilst they understand why you may not want to post on a public forum about your financial details, there should be no reason why you cannot divulge this information to a lender who operates under FSA regulations and UK law.

Things like the proceeds of crime act, money laundering and tax evasion are all things that effect the industry and whilst in your own world, you may be as honest as the day is light, not everybody is.

Gorgeous_George

No offence intended.

Tax evasion/moneylaundering are serious business and I do not know of a single legal reason why I would wish to hide my sources of income.

Bye

GG

LizEstelle

madauri wrote:

Liz, imagine that a stranger wants to borrow a large amount of money from yourself. You do not have proof that he earns any money at all, therefore you do not know whether he will be able to pay you back. What you do know is that he spends money regularly.

Would you lend him the money?

That is not answering my question. The industry seems obsessed with proof of income which, I repeat, is no indicator of ability to budget or PAY. It is simply proof of (past) ability to EARN. There are plenty of high 'earners' who, through inability to budget properly, go bust every week.

Am I talking rocket science here? I just wanted to find out whether anyone knew the reason for this and - ok - nobody does.

advent1122

I can see the headlines in the Daily Mail.
"Bank Lends Unemployed Woman £100,000 For A Mortgage - Shock - Horror"
LizEstelle from Evesham was quoted as saying upon eviction "They didnt ask if I could afford the repayments and now it is the banks fault I am living in a bed and breakfast - they have ruined my life".
Our reporter was told by the manager of the bank that he thought she would be able to keep up the repayments, he was unaware that LizEstelle was actually paying her mortgage using a credit card.
The bank now asks for proof of income before approving a mortgage - TOO LATE FOR LIZESTELLE.

homer_j_3

The reason why they need it is as Andy, myself and some of the others have stated.

To clarify and summarise:

1- A lender has a responsibility to ensure that the borrower can afford the lending being offered
2- A lender has a responsibility to Money Laudering laws to ensure that sufficient checks are carried out to ensure that dirty money is not being laundered through their institution.
3- Under the same act as 2 they have an obligation to report any suspisions of tax evasion (undeclared income for example) and that the proceeds of crime are not potentially funding a mortgage or property purchase.

Do you require any more reasons why understanding where somebodys income is so important?

HelpWhereIcan

LizEstelle wrote:

It's an issue because any borrower may:

1. Not particularly wish for his/her sources of income to be divulged to others.

Who are these 'others'? Lenders do not share the info with the Inland Revenue etc or people not associated with the application; so am not sure about the validity of this argument.

LizEstelle wrote:

2. Not particularly wish for the sources of his/her income to know that he/she is having to seek a mortgage

I would argue that a lender may see this as a reason not to lend cos what problem could anyone reasonably have with their employer/accountant knowing that they need a mortgage? No stigma to mortgage debt and most employers/accountants would not bat an eyelid at a mortgage reference request. A reluctance for your employer/accountant tobe approached to confirm your income may imply to a lender that the income does not exist, is about to end, or possibly worse that the employer/accountant is aware of something with regards to an inability to pay.

LizEstelle wrote:

I would also have said that consistent proof (via bank statements) of being able to meet a higher level of mortgage payment than that required by the new lender is worth more than a bunch of payslips. As has been mentioned, those would be no guarantee whatsoever of continuing employment over the term of, say, a 5 year fixed rate - or even past tomorrow.

There are lenders who may look to allow a 'stretch' on the amount you can borrow on this basis ie you can show being able to comfortable afford a higher level of payments; but they will also want to know what your income is, that it is likely to continue and that it is legal. Lenders also have obligations under money laudering regulations.

LizEstelle wrote:

However, the point I've been trying to get across is that proof of INCOME constitutes no grounds for believing in any particular ability to PAY

No it does not, but it shows liklihood. Underwriting is all about taking a measured risk, that is all the lender is trying to do - weigh up their risk. Income from various sources, income from commission, bonus, investemnt etc etc can all be used, but not by all lenders and in the same way by each one.

madauri

Sorry but it IS answering the question. Money lenders are not your saviours. They have a business and they have it to make money. A business person cannot affort to give away their services/merchandise happily without making sure they're going to get their own income. They would be broke in a week!
You are right in your appreciations. It is true that proof of income does not equate proof of future paying - anybody can stop paying at any moment, there is no definite evidence. But it's the thing that comes closest, and as businessmen they need to make as sure as possible they're getting their money back as smoothly and promptly as possible.
The credit score is supposed to be used here, no?