Using this year’s bonus or commission to ease your mortgage payments

Adrian Anderson - Anderson Harris

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Published: 30th January 2024

This Article was Written by: Adrian Anderson

  


As the bonus season gets underway for many professionals, we’ve been responding to questions about how best to use this form of income when purchasing a property or remortgaging.

Lenders and bonus and commission income

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.

In response to the cost-of-living challenges, some employers have been opting for bigger bonuses instead of substantial pay rises 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 remortgaging.

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.

The lending landscape

In the last couple of years, more lenders have warmed to the prospect of income, which includes variable compensation. It’s important though to seek independent mortgage advice if you are looking to purchase or remortgage, 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 property, it’s vital to know how your income will be viewed and let your mortgage broker shop around for you. This is particularly important in the current economy, as lenders’ affordability calculations factor in higher household bills and expenditures, as well as higher interest rate stress testing.

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 significant 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

Fixed rate mortgage reductions
Over the past few months, fixed mortgage rates have been falling despite the Bank of England holding base rate at 5.25%. The banks do have a strong appetite to lend in 2024 and high lending targets. It’s not surprising then that we are seeing a price war amongst the lenders so far this year – which is positive news for borrowers.

Summary

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 you want your bonus or commission payment to help increase your mortgage capacity so that you can purchase the home you desire or re-mortgage to a cheaper lender, why not contact one of our team of specialists for an initial chat? Call us on 020 7495 6633 or email enquiries@andersonharris.co.uk.


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