In This Article
Can a bonus be included in mortgage?
Most people are paid a guaranteed salary from their employed PAYE position. In addition to this, applicants may receive bonuses that form part of the annual income. These payments can usually be included for a residential mortgage.
Bonuses are often linked to performance of the individual or the company, so may not be guaranteed.
Lenders usually treat bonus payments a bit differently to how they treat a guarantee salary. Lenders do, however, all have their own individual way of looking at income, so the amount of lending that you get, based on your bonus, will depend upon the lender.
Some may be willing to use all of the payment and some may use a certain percentage, for example, 60%.
A skilled mortgage adviser should know which lenders can consider lending the most based on your overall situation.
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Can bonus payments be included for a buy-to-let mortgage?
Most buy-to-let mortgage lenders will be willing to use bonus payments in order to meet the minimum income threshold, if they have one. For example, some lenders need a minimum income of £25,000, in order to qualify for one of their buy-to-let products.
If you had a basic income of £18,000, with a bonus of £9,000, many lenders will consider this an income of £27,000, sufficient for the mortgage.
There is of course a lot more that comes into it when assessing whether an applicant meets income vs outgoings criteria for a mortgage.
Some buy-to-let mortgage lenders have no minimum income required, meaning that as long as they believe that you are in a strong financial position, they can consider you for a buy-to-let mortgage.
You should look for a mortgage adviser that has a strong background in buy-to-let mortgages, so they can get a full understanding of your situation, and the property that you wish to finance. They will then be able to recommend a suitable buy-to-let mortgage based on your individual circumstances.
How many bonuses are needed to get a mortgage?
Some lenders need to see multiple bonuses received before they are willing to include them in their affordability assessment.
For example, some lenders need to see 2 years’ worth of bonuses before being willing to include them for affordability purposes.
Other lenders can look at a shorter amount of time, such as, with only 1 bonus payment received. This may be an annual bonus, or a more regular one such as quarterly. It is unlikely that a lender would annualise a quarterly bonus if there is no evidence of these further payments being received.
Speak with your mortgage adviser about your bonus structure and payments received, to find out how much you may be able to borrow.
Do lenders accept 100% of the bonus when underwriting a mortgage?
Not all lenders will be willing to accept 100% of your bonus payments. This is because they see the income as being variable and potentially not guaranteed in the future.
However, there are lenders that can consider 100% of this income being used towards your affordability, if there is a track record of income received.
For instance, if you receive £5,000 per quarter as a bonus, there are some lenders that add £20,000 to your income, working out your affordability based on the full amount.
Many lenders will use a reduced amount, for example, 60% of the bonus income. This means for the same levels of bonuses as the last example, the lender would add on £12,000 to your salary to work out your potential borrowing capacity.
A skilled mortgage adviser will know which lenders to look at based on the amount and frequency of your bonuses.
What documents are needed to verify a bonus for mortgage?
When lenders look to include bonus income into affordability calculations, they ask for verification of these payments to support the application.
The exact document that you are asked to supply will depend upon the lender.
It is likely that they will need to see payslips showing the bonuses paid, p60s to provide evidence of consistent income over a longer period, and perhaps even bank statements to show the income being credited into the bank account.
When you go to apply for a mortgage, your broker will be able to confirm what documents are needed for a lender to fully underwrite your application.
Should I use a mortgage broker for bonus income?
If you were looking to take a mortgage, it is always recommended that you consult a professional mortgage adviser. They have access to the entire market, rather than just visiting your bank, who can only offer terms from the one lender.
With bonus income, lenders all treat it differently. This means that the amount of income they will use towards the application, and number of bonus payments they need to see, will change from lender to lender. As a result, it can be difficult to know which lenders you should be talking to unless you have industry experience.
A qualified mortgage adviser will spend their time understanding your full situation before making a recommendation, based on your circumstances.
Make sure that your broker is regulated by the Financial Conduct Authority and willing to offer you a free consultation before any chargeable work begins.
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Conclusion
It is possible to include bonus income for affordability purposes on a residential mortgage.
Some lenders will be willing to take 100% of the bonus income if it can be verified. Others may use a lower percentage, such as 60%.
Some residential mortgage lenders may need to see the bonuses received for a certain amount of time, such as 2 years. Other lenders may consider new bonus income, without a minimum time.
Bonus income is usually not an issue on buy to let mortgage applications.
Whatever your situation, you should look for an experienced mortgage adviser that can understand your entire circumstances, making a recommendation tailored to you.
Most mortgage advisers are willing to offer a free consultation so you understand your options.
If you would like I NEED ADVICE to match you with an experienced mortgage broker, who can tell you what is possible, please complete the contact form.
They are experienced, which can boost your chances of being approved.
