Anderson HarrisMarket Insight
Achieving your property dreams with this year’s bonus
How to use your bonus or variable income to bolster your mortgage capacity.
It’s a well-known fact that mortgage lenders like to keep things simple. Their credit underwriters always prefer certainty of income, which is why they like lending to employed mortgage applicants – and often tie themselves up in knots when it comes to the self-employed.
But not all employed income is guaranteed. Many employed borrowers will have an element of variable compensation (bonus or commission) built into their remuneration. This can sometimes include long-term incentive plans (LTIPS). A bonus is a bonus and therefore is not guaranteed. Commission paid as part of your work is not guaranteed either. Both are, however, very common forms of income among employed people.
This year, in response to the cost-of-living challenges, more employers are opting for bigger bonuses instead of substantial pay rises in order to give quicker financial support to employees.
It’s not surprising then, that we’re being asked how lenders will view this variable component when it comes to securing a mortgage or re-mortgaging.
For many years, the Anderson Harris team has been arranging mortgages for professionals working in London and across the UK. We’re no stranger to helping those with variable income. Here’s how the market is performing for those with bonus or commission-driven income to spend.
How things have changed
During the pandemic lenders initially resisted considering variable pay, however many have warmed again to the prospect of this form of income. It’s important though to seek independent mortgage advice if you are looking to purchase or re-mortgage, as different lenders have different criteria. That independent viewpoint can make all the difference in helping you find the best deal and terms.
When trying to borrow a healthy amount for your dream property, it’s key to know how your income will be viewed and let your mortgage broker shop around for you.
This is particularly important now, as lenders’ affordability calculations are factoring in higher household bills and expenditure, as well as higher interest rate stress testing. Bear in mind that with property prices currently falling, this may also have an adverse impact on the loan to valuation (LTV) when renewing a mortgage rate.
The variety of variable income
In addition to those receiving bonuses, we regularly help professionals in the City and nationally who are awarded restricted stock as part of their remuneration package. In these cases, some lenders will consider this income if it has been vested on a regular basis.
What is your mortgage capacity?
So far this year we have seen a big difference in our clients’ mortgage capacity between the different lenders. Some of the factors which can make a large difference to how much the banks will lend are:
- your age
- the split of fixed versus variable compensation
- how long you have been in your current role
- your outgoings
- the level of deposit
- your track record and the sustainability of your variable income
Fluctuating mortgage rates
Regarding mortgage rates, we have seen fixed mortgage rates falling for the past three months despite the Bank of England’s rate rises.
The banks do have a strong appetite to lend in 2023 and are keen to lend in a market which is predicted to be circa 20% smaller than the previous year. This means we are currently seeing a price war between the lenders.
For this year’s bonus season, it is important to recognise lenders’ criteria in the current economic landscape. Turning to independent mortgage brokers, such as Anderson Harris, will help you find the right deal for your circumstances and save you lots of time and hassle in the process.
If your bonus or commission payment means you can achieve your property ambitions this year, why not contact one of our team of specialists for an initial chat? Call us on 020 7495 6633 or email email@example.com.