Bonus income is viewed differently by lenders when it comes to mortgage affordability.
The good news is that there are UK banks who offer bespoke mortgages & shorter term finance products designed specifically for clients who have earnings which are made up from bonus income arrangements, which often offer attractive interest rates and flexible loan terms.
Our strength as a specialist finance broker is providing access to residential and commercial property finance from £100k to £25m. We have relationships with high street and private banks, specialist lenders, family offices and wealth managers. We also have access to private investor funds.
As a general rule, lenders will use the two year average of bonus payments when assessing your bonus income, they then will only count 50% to 60% of it due to the potentially inconsistent nature of this form of income. Some lenders will also only lend against a bonus with a ceiling that is the same as the basic salary. For instance, if your basic salary is £15k they will only include bonus income of up to £100k regardless of the actual amount. Not only that, they generally account for only half of that bonus when measuring income.
When it comes to offering mortgages to those looking to secure them with bonus incomes, it is not uncommon for many high street banks to take half of a two year average of the bonus, providing that the bonus is increasing. This average is then used as part of the affordability based income multiplier; even if it is more than the basic salary. However, these types of lenders tend to require that you have at least two year bonus track record with the same employer.
A fixed rate mortgage provides a defined rate of interest over a given period. You will know what you will be paying each month over the loan term, after that you will either move to the lenders standard variable rate, or find a new deal to move to. On the other hand, tracker mortgages are linked to the Bank of England Base rate and are set at a certain margin above it. For instance, a tracker at base rate plus 2.5% would currently charge interest at 3% whilst the base rate is at 0.5%. If the base rate moves up, then the mortgage interest rate will move up with it.
Some typical examples of mortgage deals secured by bonus income can be seen below
With all of the confusing terms and conditions with each mortgage, the whole process can often be a headache; which is why we recommend that you contact one of our specialist bonus income mortgage advisors who can make the process simple for you.
Whilst it is important to shop around when looking to get the most competitive deal on your mortgage using your bonus income, we also urge that you get in contact with a mortgage broker or independent financial adviser.
Firstly, a mortgage broker such as ourselves will be able to assist you through the whole application process. They know what lenders are willing to consider in an application, stopping you from wasting time and effort applying for other lenders.
Additionally, as a mortgage broker we have access to exclusive deals that you won’t find on the high street, and lenders that often cater for niche circumstances when looking to buy a mortgage with bonus income.
If you feel that you would benefit from the help of a mortgage broker why not call our specialist mortgage advisory team today, who can help analyse your personal situation and offer unbiased, expert advice and guidance; to assist you in finding a competitive rate mortgage using bonus income that you can afford and that meets your mortgage goals.