When your income has gone down between one set of accounts and the next, and you also have a credit issue, a lender is trying to answer two related questions at once: is the mortgage affordable on your current, lower income, and did the same difficulty that hit your trading also cause the problem on your credit file? How those questions are answered often depends on whether the fall looks like a one-off dip or an ongoing decline.
This page focuses on falling income specifically. For the broader evidence self-employed applicants provide, see our main page on self-employed bad credit remortgages.
On this page
This page covers
- Employment
- Self-employedLenders commonly ask for tax calculations and accounts covering one or more years.
Read the main guide: Remortgaging when you are self-employed and have bad credit
In short
- Where income has fallen, some lenders use the lower or most recent year rather than an average of 2 years.
- A one-off dip with a clear cause is usually viewed differently from an ongoing downward trend.
- If a credit issue happened during the same period as the fall in income, being able to explain the link can help.
- A stronger, more recent set of figures can improve your position even while an older credit issue remains on file.
How do lenders use figures when income has fallen?
| Approach | Effect on your income figure |
|---|---|
| Average of the last 2 years | Blends a stronger earlier year with a weaker recent one, which can help if the fall was recent. |
| Lower of the 2 years | Some lenders default to the more cautious figure, which reflects the weaker year in full. |
| Latest year only | Uses the most recent, lower figure directly, without any offsetting from an earlier stronger year. |
General information only. Which approach a lender uses is not something you can choose, and varies by lender.
Because the approach varies, the same set of accounts can support a different amount depending on which lender an adviser approaches, which is one reason a broad search across lenders can matter more when income has fallen.
A one-off dip, or an ongoing decline?
A single weaker year with a clear, specific cause, such as losing a major client, an illness, or a slow period in your sector, is usually easier for an adviser to explain than a trend that has continued across several years with no sign of recovery. If you have a partial year of more recent figures or management accounts showing improvement, these can support the explanation, even though a lender will still rely primarily on completed, finalised figures.
If your income has fallen because your business has changed direction, for example moving to fewer, larger contracts, it can help to explain that change rather than let the figures speak for themselves.
When falling income and a credit issue happen together
It is common for a trading dip to lead to both lower profit and a missed payment, default or worse on the same timeline. Lenders and advisers are generally more comfortable when they can see that link clearly: the income fell, a specific debt was affected, and since then things have stabilised or improved.
What if income is still falling now?
This is a harder position, because a lender is being asked to lend against affordability that has not yet stabilised. Being honest about this with an adviser, rather than hoping it goes unnoticed, usually leads to a more realistic conversation about timing and which lenders, if any, may still be able to help.
Strengthening your position
- Prepare a short, factual explanation of what caused the fall in income.
- Gather bank statements or management figures showing any recovery since your last finalised accounts.
- Keep evidence of new contracts, clients or work that support future income.
- Check whether waiting for your next set of finalised accounts is realistic given your deal end date.
- Check your credit reports from Experian, Equifax and TransUnion for anything linked to the same period.
More equity in your home can also make a difference where both income and credit history are being looked at closely. See our guide on how loan-to-value affects a bad credit remortgage.
What may affect options when income has fallen
| Factor | Why it matters |
|---|---|
| Size and cause of the fall | A small, explained dip is generally viewed differently from a large or unexplained decline. |
| Whether the fall has stopped | Evidence that income has stabilised or is recovering, even before your next finalised accounts. |
| Which year’s figures a lender uses | Average, latest year, or lower year, depending on the lender’s approach. |
| Link to any credit issue | Whether the same period that affected your income also led to a missed payment, default or worse. |
| Age and status of the credit issue | How recent, how serious, and whether it is satisfied. |
| Sector-specific factors | Whether the fall reflects something specific to your trade rather than your business alone. |
| Loan to value | A lower LTV can help offset a lender’s caution around falling income. |
These are general points, not lender rules. Each lender sets and changes its own criteria.
Information an adviser may ask for
You don’t need all of this to make an enquiry. It helps to know where to find it, because an adviser is likely to ask about most of it.
- SA302s and tax year overviews, or accounts, for at least the last 2 years
- A short written explanation of what caused the fall in income
- Bank statements or management figures showing any more recent recovery
- Evidence of new work, contracts or clients since the fall
- Your credit reports from Experian, Equifax and TransUnion
- Your current deal end date and any early repayment charge details
Frequently asked questions
Will a lender always average my last 2 years of income?
Not always. Some lenders average 2 years, some use the lower of the 2, and some use only the latest year. Which applies depends on the lender, so the same figures can support different amounts with different lenders.
My income fell the same year I got a default. Does that make things worse?
Not necessarily, if the link can be explained clearly. Lenders are often more comfortable seeing that a specific event caused both the fall in income and the credit issue, especially where things have since stabilised, than being left to guess at a connection.
Is it better to wait until my income recovers before applying?
It depends on your deal end date and how close you are to a recovery you can evidence. Waiting can help if a stronger set of figures is realistically close, but it needs weighing against moving onto a lender’s standard variable rate if your current deal has ended.
What if my income is still falling right now?
This is a harder position, since affordability has not stabilised. Being upfront with an adviser about the trend allows a more realistic conversation about timing and which lenders, if any, may still be able to help.