Bonus incomes are part of many jobs nowadays, and you may be relying on it to put towards your new home.
However, different lenders view bonus income in varying ways. There are lenders out there that are happy to borrow in such circumstances, but you’ll need to speak to an adviser that has access to a wide range of lenders.
Whilst there are a small number of lenders that won’t look at bonus income, most will look at your two-year average of bonus payments. They will then only consider 50-60% of that average as it’s an inconsistent form of income with no certainty.
Some lenders will look at lending against your bonus but only to a limit that is the same as your basic salary.
For example, if you earn £80,000 per year, some lenders will only include bonus income of up to £80,000 – even if you earn a £200,000 bonus. And they could even only look at 50-60% of that.
In this scenario, the maximum total income that the lender would use in their calculations would be £120,000 (£80k salary + £40k [half the bonus]) which can limit your borrowing capacity if you’re a high bonus-earner.
High street lenders that do look at bonus income usually adopt the same ‘half of a two-year average’ approach, which is then used as part of their affordability based income multiplier.
As opposed to specialist lenders that look at clients with complex income structures and will still consider all of your bonus income, high street lenders will normally require a minimum of a two-year bonus income track record with the same employer and the bonus must be paid in sterling.
If your bonus is paid either weekly, monthly or quarterly than you stand in better stead in the lenders’ points of view. However, if you receive an annual bonus, they may, as previously mentioned, only look at around half of your bonus.
Whether you’re an annual bonus or receive it weekly, you can speak to one of our expert advisers, who will be able to walk you through the next steps of getting your mortgage.