How to Get a Mortgage Using Your Annual Bonus
High-earning individuals, such as City professionals, investment bankers, hedge fund managers, investors, and senior executives, often earn additional income through a bonus scheme. The value of a bonus scheme can represent a significant and often decisive component of their overall remuneration packages. This can, in turn, have a major impact on the process of applying for a mortgage.
Our guide to bonus mortgage applications shares how different lenders evaluate bonus income. Frustratingly, there is little consistency across the marketplace; however, we have shared general trends and common features of the borrowing landscape. We will also share the evidence required to support an application and how the timing of an application can influence affordability outcomes. You’ll gain practical insights into lender criteria and preferences, and learn about common mistakes and pitfalls that can undermine an application.
Can You Use A Bonus For A Mortgage?
Most UK lenders will consider a bonus income mortgage application. In fact, this is often entirely normal for high-earning individuals. Many professionals, such as investment bankers, lawyers, hedge fund managers, consultants, and senior executives, routinely use bonus income to support mortgage applications. However, applicants typically need to overcome challenges related to mortgage affordability bonus restrictions and additional scrutiny to gain approval for borrowing.
How Lenders Assess Bonus Income
There is no single standard for assessing bonus income for mortgage purposes. Each lender applies its own methodology, shaped by regulatory requirements and its internal appetite for risk. As a result, the same customer can achieve very different borrowing outcomes depending on who they deal with.
Two-Year Vs Three-Year Averaging
Rather than relying on the most recent figure alone, lenders take an average of the bonus over a period to smooth year-to-year volatility. Most high-street lenders require at least two years’ bonus history, with some preferring three. It is important to provide evidence of your earnings over time.
For example, if you receive an £80,000 bonus one year and £120,000 the next, most lenders will work from a two-year average of £100,000. Alternatively, £80,000, £120,000, and £65,000 will lead to a three-year average of £88,333. It is important to understand the implications of your recent track record.
If your average does not support your ambitions, specialist lenders may be in a position to base borrowing on one year’s bonus. This is high-risk, but may be possible in cases where total earnings are high.
“Lowest of” Approach
As an alternative to relying on averages, some lenders apply a so-called “lowest of” approach. This is a more conservative method of calculating affordability that estimates the lowest likely future bonus figure based on the borrower’s position, track record of prior earnings, and prevailing market conditions. A lowest figure might be derived from multi-year averages or a capped percentage of earnings to date.
If you are dealing with a lender who uses a “lowest of” approach, it’s important that you, or your representative, understand the formulae and calculations used to assess any application. The “lowest of” might, ultimately, prove to be too low.
Lender Type: High Street vs Specialist Lenders & Private Banks
The way bonus income is assessed differs materially depending on the type of lender involved. High-street banks, because they operate at scale, for example, tend to take a more rigid, formula-driven approach. This can be restrictive for borrowers relying on bonus income.
Specialist high-value, high-net-worth lenders, by contrast, are typically more flexible. They are often willing to take a more nuanced view of income variability, professional background, and bonus history.
Private banks go further still, usually assessing affordability on a broad, holistic basis. In addition to income, they may consider assets, retained bonuses, investment portfolios, and long-term earning potential, particularly for larger loans or borrowing in excess of £1 million.
If you’re not sure which type of lender to approach to borrow for your property, it certainly pays to get expert broker support.
Documents You Need For A Bonus Mortgage Application
Lenders will not rely solely on projected or anticipated bonus income. It is essential to have clear, verifiable evidence of your financial position. In most cases, lenders will request supporting documentation such as:
Payslips
P60s
An employment contract
Details of any bonus scheme
Bank statements confirming payments
Additional supporting evidence can prove helpful, such as a track record of success and an indication, if not a guarantee, of future performance. This additional context can significantly improve lender confidence and strengthen overall affordability assessments.
Timing Matters
The timing of a bonus mortgage application can affect lenders’ approach to affordability assessment and view risk. It pays to talk to a mortgage advisor or broker early in the property buying process. Having a timeline in place before a property search, for example, can increase the chances of a successful transaction.
Some lenders will include a bonus not yet paid, but only if:
Historical bonuses are consistent
Employer confirmation is strong
Loan-to-value is conservative
Lending on a future payment is more common with specialist and private lenders, who have greater flexibility in responding to bonus mortgage applications. Applying once a bonus has been paid naturally makes it easier to evidence your earnings. This approach is likely to improve deposit size, reduce loan-to-value, and strengthen underwriting confidence.
Common Mistakes That Reduce Borrowing Power
Avoidable missteps can significantly reduce borrowing capacity or even derail mortgage applications altogether. Relying solely on projected bonuses, for example, without supporting historical evidence, is likely to be unacceptable to mainstream lenders. Large additional credit commitments, taken out at the same time as a mortgage application, such as car finance, personal loans, or large credit card balances, can also materially reduce affordability. Failing to fully disclose financial commitments such as school fees, maintenance payments, and other property costs will also have a damaging impact on affordability. It pays to be fully transparent.
Understanding the most common mistakes borrowers make and taking steps to avoid them is essential to maximising borrowing power for bonus-based mortgage applications.
How To Progress With A Bonus Mortgage Application
If you have a bonus income, the good news is you can use it in a wide range of borrowing scenarios. Each, however, requires a slightly different approach depending on how your income is structured and how lenders are likely to view it.
Among the strongest scenarios is applying for a loan with a stable and well-established bonus history. If extra, additional income has been paid consistently over several years, many lenders will use it when assessing affordability with minimal scrutiny. A high-street bank product may be available to you. However, a less formal combination of bonus and commission income, typical in trading, sales, and performance-based roles, may require the attention of a specialist lender or private bank.
At the top end of the market, for high-value loans, it might be necessary to open up structures and borrowing levels that would not typically be available through standard lenders. In all the above scenarios, it pays to get independent advice from an experienced broker.
Anderson Harris provides a well-structured approach to bonus and complex income mortgage applications that can significantly increase borrowing power, reduce friction, and find the best lenders and products for our clients. We advise on lender strategy, timing, and structure, ensuring your bonus works as hard as possible for you.
FAQs
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Yes. Most UK mortgage lenders will consider a bonus. Lenders, however, may apply more cautious affordability rules and scrutinise an application more closely.
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In most cases, lenders require at least two to three years of bonus history to demonstrate consistency and sustainability. Some specialist lenders and private banks may lend based on one year’s bonus history, which will affect affordability.
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It is uncommon for lenders to use 100 per cent of bonus income when assessing affordability. Many will cap the amount they consider, so it’s important to navigate the available products carefully.
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Lenders usually address varying mortgages by averaging figures over two to three years or applying conservative ‘lowest’ measures to reduce risk.
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Affordability calculations vary considerably between lenders. Finding a product that matches your circumstances can significantly improve borrowing capacity
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Yes. An independent adviser or broker can identify lenders best suited to bonus-based income profiles and maximise the chances of acceptance.
