Can You Use Bonus Income and Commission Payments Towards Your Mortgage?

23-December-2021 12:50
in Mortgage
by Sam Hodgson
Can You Use Bonus Income and Commission Payments Towards Your Mortgage?

Whether you can use your bonus and commission as income towards your mortgage is a question we’re asked more and more every day.

On target earnings (OTEs), commission-based salaries and large annual bonus payments are becoming increasingly common in today’s corporate world.

The effectiveness of commission and bonus incentives is well-proven as a means to increase performance and results, and it’s a salary structure that many of our high-earning clients receive.

And although some lenders are more lenient, they may cap your usable bonus or commission for your mortgage at 65% as a safety net.

In this blog, we look what types of bonus income can cause issues for your mortgage application, why lenders don’t like them, and how you can ensure your bonus income gets accounted for when you apply for your mortgage.

In this guide

What type of bonus and commission can be used for your mortgage?
Why is it difficult to get a mortgage using performance-based income?
How will a lender calculate your bonus payments and commission for your mortgage?
How can you use your bonus and commission earnings towards your mortgage?

Bonus Income For Your Mortgage

What type of bonus and commission can be used for your mortgage?

Whether your mortgage lender will accept your performance based income will depend on a few factors:

  1. The value of the earnings.

  2. The frequency of payments - e.g., monthly commission or an annual bonus.

  3. The consistency of the amounts - large fluctuations in earnings could be a red flag for lenders.

  4. How much evidence you can provide through payslips – for example, you'll need at least two years’ proof of annual bonuses and at least three recent payslips for monthly commission.

  5. The industry you work in, and the perceived reliability of your bonus and commission.

As long as you can prove the regularity, value and consistency of your bonus or commission payments you should be able to include it in your mortgage application.

But, you may need to speak to a mortgage broker that can take your application to providers who will accept it.

Read our related blog: Complex Income Mortgages - How to Secure One 

Why is it difficult to get a mortgage with performance-based income?

Understanding why lenders don’t like using performance-based income for your mortgage can help you bolster your application to make your income more attractive.

The main issue that lenders have is that they are unpredictable, both in terms of frequency and value, as it adds a layer of risk to their affordability calculations.

From their perspective, although you may be confident in your own abilities to keep hitting targets and earning commission and bonuses, they have to look at worst-case scenarios in which markets change or your performance levels drop.

Commission Based Mortgage

If your income isn’t contractually guaranteed, they can only take it so far towards your mortgage application.

If a bank lends you money that you can no longer afford to pay back due to a change of circumstances, it’s not good for you or them – they'll lose money on your missed repayments on your mortgage, and they could face regulatory action if they’ve breached their lending criteria.

Anything you can do to reassure your mortgage provider of the consistency and reliability of your bonus income will improve your chances.

As a minimum, you’ll need:

  • For annual bonus – at least 2 years of evidence of previous year’s bonuses.
  • For monthly commission - 3 months of payslips evidencing your payments.

Maximum LTV Mortgage

How will a lender calculate your bonus payments and commission for your mortgage?

This answer varies from lender to lender and from case to case (for example, a first time buyer application may differ to a buy to let mortgage). And this is where using a mortgage broker can be crucial.

They will package up your application and send it to the right lenders that will take a favourable view of your income if it’s presented in the right way.

  1. Firstly, a lender will calculate the average value of your previous bonus income or commission payments and multiply it by 12 to get a pro rata figure.

  2. Most providers will then have a cap in place as to how much of your bonus or commission you can use when applying for a mortgage on top of your basic salary. It’s often around 65%, but some lenders can increase this threshold in special circumstances. 

Top tips on getting the most out of your bonus income for your mortgage application

1. Get sufficient proof of income via payslips and banks statements, and employment
    contracts if applicable.

The more proof you can provide the better, and getting it together in advance will speed up your application.

2. Speak to a mortgage broker about your application.

A mortgage adviser will take the time to understand your occupation and your bonus or commission structure.

They will then present it favourably to their connections at the specialist lender, private bank, building society or high-street lender of their choosing who will be best equipped for your case.

And, you won’t have to sacrifice a deal on your interest rate in order to get your bespoke income approved for your application.

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