Using Bonus income for mortgage: what is acceptable income?
Bonus income mortgage qualification: some factors
- Straightforward cash bonus via payslip typically acceptable to High Street lenders
- Complex income e.g. vesting stock schedule or other non-cash bonus, borrowing will be lender specific, typically Private bank or specialist lenders are a better route for this
- Timing of bonus payments e.g., monthly, quarterly, annually play a large role
- Track record of regular payments over 6, 12, 24 months vs annual or ad hoc bonus help lenders use this income
- Consistency of amount e.g., same amount or variable amount
- Bonus exceeds base income or is paid in shares, many lenders are cautious of this
How to calculate bonus income for mortgage
Let’s say your basic salary is £100,000 and you’ve got an annual bonus or bonuses of £100,000 in the same year = £200,000 income.
Market average of 4.5 x income (but some lenders go as high as 5.5 x income)
Example 1 – Bonus excluded in income assessment
Basic salary of £100,000 x 4.5 = £450,000
Example 2 – Half of bonus amount included in income assessment
Basic salary of £100,000
+ 50% of bonus income = £50,000
£150,000 x 4.5
Example 3 – 100% of bonus amount included in income assessment
Basic salary of £100,000
+ 100% of bonus income = £100,000
£200,000 x 4.5
This demonstrates that there is a massive difference in mortgage value which means that you can literally double the loan size you can get if you talk to the right lender at the outset.
We see more and more clients being paid in Shares, which vest over various periods. If you want to use this type of income many lenders struggle as it sits between income and assets.
That said, depending on your overall profile and lending objectives, there are lenders that can see past these. They include them as income, or at least, a method to repay the loan later.
Essential to talk to a bonus income mortgage specialist
- Depending on your mortgage goals, it really is essential to talk to a mortgage advisor that has access to the whole market, when using bonus income for a mortgage.
- Your bank of many years that you know and love, through changes in ‘mortgage affordability’, may not offer you the best terms or loan amount when working out how to calculate bonus income for your mortgage.
- It makes sense to look over the fence to what else is available and a mortgage specialist is your best and easiest way of doing that.
- We have access to lenders, products, and underwriters that the general public simply do not.
Your bonus income mortgage structure
One of the first things to consider is your repayment vehicle.
Do you want to opt for?
- a repayment loan?
- an interest only loan?
- part & part which is a combination of the two?
What is a Repayment mortgage?
- You make monthly payments and at the end of the term the loan is repaid.
- With a repayment mortgage the monthly payments are higher but with less risk.
What is an Interest Only mortgage?
- You simply pay the interest on the mortgage loan and look to pay off the loan later with say, the sale of property, investments, or bonuses.
- With an interest-only mortgage the monthly repayments are lower but is assessed as higher risk.
Your bonus income mortgage product
You will also need to consider which type of mortgage product is best for you as this determines your monthly payments.
- Fixed Rate Mortgage. Your repayments are set for 2,5, 10 years.
- Variable mortgage. This is sometimes cheaper, but the rate can go up or down depending on the market and is often penalty free if you want to remortgage.
Rather than asking how much it will cost, consider how much can you afford.
Your mortgage specialist will then structure your mortgage appropriately, based on your risk profile.
What bonus income mortgage rates can I get?
- The actual mortgage rates you will be offered will be dependent on your personal circumstance and deposit level. Your broker will advise you on mortgage deals for you.
- Therefore, think about how much you want to spend each month on your mortgage repayments.
- Only brokers have access to a range of lenders in the market, and we have access to exclusive mortgage rates.
How much deposit do I need?
- The long answer is that it is dependent on your circumstances: purchase price, income, and property type.
- The short answer is – about 5%-10%.
- Lenders purely take a risk-based approach to pricing, meaning from a starting point of a 5% deposit, every additional 5% deposit you put down increases the range of lenders you can choose from and therefore decrease the cost of the loan as you are determined as lower risk.
- Lenders consider you a low-risk buyer when you put down a 25% deposit or more.
- The last key figure is a 40% deposit. Once you have a 40% + deposit you get the very cheapest pricing available and very often the exceptionally low rates you see on best buy tables.
We are here to help you with bonus income mortgage deals.
As a top-rated mortgage broker, we are here to guide you on every step of your journey.
- Your dedicated mortgage broker will provide you with detailed, personalised advice on how much you can borrow and source exclusive mortgage deals when advising you on your bonus income mortgage qualification.
- In today’s mortgage market, each borrower is assessed on their individual affordability merits. Once we have talked through your personal circumstances, we will advise you on mortgage interest rates for you.
- This means you get the right advice crucial to using bonus income for your mortgage circumstances.
- Rose Capital Partners takes the time to understand your mortgage goals to secure the optimal mortgage deals for you.
- Our mortgage advice is second to none. We will advise you on mortgage interest rates appropriate for you.
- Our aim is to maximise your borrowing potential, minimise your monthly payments and work with you throughout the lifecycle of the loan to manage down the mortgage.
- You are treated as a valued client, not a transaction, and dealt with by an experienced, empathetic person, not an algorithm.
- We have access to competitive deals and with no affiliation to third parties.
- We will always act in the best interests of you, our clients, to give you the best mortgage advice possible to achieve the right mortgage for your life’s goals.
How We Can Help
- As you can see above, the more complex the income, the more help you often need to be approved for a bonus income mortgage and understand the bonus income mortgage qualification.
- We specialise in this area, so would encourage you to speak to one of the Team just to see what your options are before progressing too far with an application when assessing how to calculate bonus income for a mortgage. This will ensure you get a smooth experience when applying for your bonus income mortgage.
Your property may be repossessed if you do not keep up repayments on your mortgage.