With online platforms making access to the stock market easier, more people than ever are investing their money into stocks. This quite rightly is raising concerns about whether investing in stocks will affect your mortgage application if you’re about to make, what could be, the biggest purchase of your life.
Yes, investing in stocks can affect your mortgage application. As your investments do not appear on your credit report, there can be minimal to zero impact, however, if your stocks can influence the size of your deposit or amount of income it can affect your mortgage application.
In this post I’ll explain how investing in stocks can affect your mortgage application, including ways it can actually help such as increasing the size of your deposit, as well as key factors to avoid.
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Do Mortgage Lenders Look At Stocks?
Mortgage lenders typically don’t look at stocks unless you’re either declaring them as a form of income (or loss) or using it to make up part of your deposit. Brokerage accounts don’t show up on your credit report either so a mortgage lender won’t know you have them unless you tell them.
If your stock portfolio affects your income whether positively or negatively a mortgage lender will want to know about your stocks. It can actually help your mortgage application if you were to use your stocks to increase your deposit or earn income through dividends, capital gains and trading.
Mortgage lenders will also request copies of your bank statements to show proof of income and spending habits. If you’re regularly saving into your brokerage accounts, this could be another place where a mortgage lender is made aware that you invest in stocks.
They might ask to see the accounts, however, if you’re not declaring that is a form of income on your mortgage application, just by regularly saving and investing each month will be a positive sign to the mortgage lender.
This is because spending habits is a key factor mortgage lenders assess and regularly saving shows good money management.
Do Mortgage Lenders Accept Dividends As Income?
Yes, mortgage lenders accept dividends as income and can help you increase the total amount a lender will let you borrow for your mortgage.
A lot of the stocks you invest in will pay out a regular dividend, it’s mainly high growth stocks that don’t pay a dividend as they try to use that money internally to generate a better return and focus on growth.
You will need to be able to demonstrate at least six months’ worth of dividend payments, ideally two years or longer for the income to be accepted in your mortgage application. Having at least one year will also help capture any companies that only pay annual dividends.
I’ve written a full post on whether mortgage lenders accept dividends as income that you may find useful.
Should You Sell Stocks Before Applying For A Mortgage?
No, you don’t need to sell your stock portfolio before applying for a mortgage. As investing doesn’t affect your credit score, your stock portfolio may only influence your income levels or the amount of deposit you’re able to put down for the mortgage.
If you need a certain size deposit to get a mortgage, with a lot of mortgage lenders now asking for at least 10%, if you don’t have that in cash then you may want to sell some of your stocks in order to get the cash needed for the deposit. However, just be aware of any tax implications if you do sell any of your stocks.
It’s also worth noting that the higher the deposit you have, the lower the interest rate mortgage lenders typically offer as it reduces their risk. The loan-to-value ratio, or how much you’re borrowing as a proportion of the property value is a metric used by mortgage lenders.
Mortgages often become cheaper at every 5% milestone, so for example an 80% loan-to-value mortgage will often get a lower interest rate than a 90% loan-to-value mortgage.
This means the higher the deposit the more money you may be able to save on interest payments. However, historically the stock market has performed better than the mortgage rate being offered, although reducing your total borrowing will produce guaranteed savings, whereas the earnings from the stock market can be volatile and unpredictable.
If you don’t want to sell your stocks under any circumstances, then using your stocks as collateral for your mortgage may be an option that I’ll explain below.
Can You Use Stocks As Collateral For A Mortgage?
Yes, you can use stocks as collateral for a mortgage. This is known as securities-backed lending and in theory, any financial asset can be used as collateral. However, not all mortgage lenders will accept stocks so you may find you’re paying a higher rate of interest compared to a regular mortgage.
Using stocks as collateral would mean you wouldn’t have to sell your stocks in order to get a mortgage, however, to account for the risk of the stock decreasing in value, a lender usually won’t give you 100% of the value, it’s usually around 60%.
This means if you wanted to borrow £240,000 then you would need to put forward £400,000 worth of stocks as collateral.
If this is something you’re wanting to do, make sure to speak to a mortgage advisor that has experience helping people find a mortgage lender that accepts stocks as collateral. They’ll also be able able to offer you advice and help give you all of your options.
Does Stock Trading Count As Income For Mortgage?
Yes, stock trading does count as income when applying for a mortgage. This will count as self-employed income where up to 100% can count towards the mortgage application, however, you will need to provide at least six months, ideally over two years proof of income.
Ideally, mortgage lenders are wanting to see the consistency of income over a long period of them so they can make assumptions about whether that income is likely to continue in the future.
If, for example, you made a significant windfall by investing in one stock that tripled in a month although your average monthly trading income was a lot lower, the mortgage lender will most likely take an average, or even completely exclude that month from the income calculations.
What Else Can Affect A Mortgage Application?
Whether you invest in stocks is one element that can affect your mortgage application, although there are many other factors. I also touched upon the size of your deposit in relation to your overall loan value, the loan-to-value ratio that can have an effect, effectively with the higher the deposit the better.
Here are some other factors that can affect your mortgage application.
- Credit score
- Income level
- Spending habits (affordability)
- Employment status (longer you’ve been employed the better)
- Type of property (some properties such as flats above bars are deemed riskier to lenders due to their difficulty to resell)
Summary
Overall, investing in stocks does affect your mortgage application, however, unless you’ve made a significant recent trading loss, investing will be a positive sign to the mortgage lender if they even ask.
If you do have any questions or concerns make sure to speak to a mortgage broker. They can give you advice specific to your circumstances as well as take you through all of your options. I’ve written a post about what questions to ask a mortgage advisor that you may find useful.
I hope this post was useful and good luck securing your mortgage application.
Hi, I’m John. I’ve always had a keen interest in Finance, so much so that I’ve made a career out of it! This site is a place where I can share everything I’ve learned as well as give me the excuse to research certain topics.
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