How do lenders treat bonus and commission income?

If you regularly receive bonuses or your income includes commission payments, it can be difficult to know which lenders will be most accommodating to your circumstances. Mortgage providers look at varying income in different ways. In this podcast we will be explaining how the help of a professional Independent mortgage adviser can be the difference between buying that dream home or missing out.

Hello, this is a podcast from Charles Cameron and Associates, and today we’ll be discussing bonus and commission income and how this can be applied to the assessment of a mortgage application. When lenders calculate the maximum loan amount they would be willing to lend you for a mortgage, they will assess your affordability.

This calculation is based on your income versus your lifestyle and any other credit commitments that you may have. Most lenders will happily take variable income, such as commission and or performance bonuses into account when making this assessment. However, each provider’s pre-set criteria for assessing this income varies from lenders to lender, so it’s always best to speak to an independent advisor who will understand which lender and which mortgage product would best suit your individual circumstances.

This can also save you wasted hours of research and mortgage interviews. As an example, let’s look at non-guaranteed bonuses. If your bonus is paid annually, some lenders will take an average of the last two years bonus amounts or the lower of those two figures. Some lenders will then use 100% of this for their affordability calculations, whereas others may only take a smaller percentage into consideration.

There are also lenders who are happy to consider just one year’s bonus history, so are more suitable for clients in newer positions. Lenders can also consider bonuses that are paid by annually or quarterly. However, they will need to see sufficient evidence of the amounts and dates paid in order to show what you have been paid over a 12 month period. All lenders will want to see payslips that clearly state the bonuses declared. Therefore, the lender will not be able to use future predicted bonus figures. Lenders also vary their stance when using commission income for affordability calculations. If the commission income is paid on a monthly basis, the lenders will typically want to see your last three months payslips and on some occasions may also ask for your last P60 to show the history of the receipt of this income.

Like bonus income, some lenders will use a percentage of this income in their calculations, so it’s important to ascertain how much of this income will be used as part of your basic income for the lenders assessments. As lenders have different stances on this variable income, it’s always recommended that you discuss your individual circumstances and mortgage requirements with one of our independent mortgage advisors. They will be able to navigate you through the maximum mortgage loan amount, and explain what supporting documentation will be required for a mortgage application. When the time comes to book a free appointment with one of our advisors. Please call 020 7953 7040 or email info at ccameron.co.uk.