If you receive a large proportion of your income from bonuses, getting a mortgage isn’t always straightforward.
Thousands of people across the UK, often those who work in sales, earn a basic salary, plus a bonus or bonuses, which can be paid either on a weekly, monthly or annual basis. Even though these bonuses might make up much of your income, some lenders are cautious about factoring them in when deciding how big a mortgage to offer you.
That’s because bonuses often vary in size, so while you might get a particularly big bonus one week, month or year, there’s usually no guarantee that you’ll get the same amount the next time. Lenders are therefore concerned that if they offer you a mortgage based on your current bonuses and these subsequently reduce, you might not be able to afford your monthly mortgage payments. As a result, some prefer to look at your basic salary alone, without factoring in your bonuses, so you may find that some lenders offer you a much smaller mortgage than you’d hoped for.
But don’t despair if you’re finding it hard to get the mortgage you need because of the way your income is structured. Although lenders are likely to be more cautious if most of your pay is bonuses, there are banks and building societies which will take them into consideration when working out how much they will lend you.
Lenders are more likely to take your bonuses into account if you receive them weekly, monthly or quarterly, and if your bonus payments have been relatively consistent over a prolonged period. If, however, you receive an annual bonus, they may only agree to factor in half your bonus. Some lenders take an average of the last few years’ bonus and then take a proportion of this amount into consideration, again usually 50%.
As lenders assess bonuses in different ways, it’s usually a good idea to seek advice from a mortgage broker before applying for a mortgage; they are likely to have dealt with many other people in a similar situation. Based on this experience, they will be able to recommend the lenders that do help borrowers who receive a large part of their income in bonuses, and can compare all the various deals that are available to you.
As your broker will recommend the most suitable mortgage product, you’ll avoid multiple credit checks by multiple lenders. We’d recommend limiting the number of credit checks run to avoid damaging your credit score, which could actually reduce your ability to secure a mortgage.
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Buying a home with your basic salary plus bonuses