Receiving a substantial bonus can be an exciting financial boost, but did you know it could also help you secure a larger mortgage? Many lenders consider bonuses as part of your income, enabling you to enhance your borrowing potential.
However, this process involves navigating lender-specific policies, providing comprehensive documentation, and understanding the factors influencing their decision.
This guide explains how you can use your latest year’s bonus effectively to secure a mortgage, with detailed steps and real-world case studies for reference.
Can You Use Your Latest Year’s Bonus for a Mortgage?
Yes, many lenders allow you to include your latest year’s bonus as part of your mortgage affordability calculation. This is particularly beneficial if your bonus is a significant portion of your income, or if you’ve had a recent high-performing year.
However, lenders assess bonus income differently from fixed salary income, often applying stricter criteria to ensure its reliability.
Common Lender Practices:
- Some lenders consider 100% of the latest year’s bonus if it demonstrates consistency or growth.
- Others may average bonuses over multiple years if the latest figure is unusually high.
- Specialist lenders are more likely to include a larger proportion of your bonus income.
Factors Lenders Consider for Latest Year’s Bonus
1. Frequency and Consistency of Bonuses
Lenders prefer consistent bonus payments as they indicate financial stability. Key points include:
- Consistent Bonuses: Regular bonuses over 2–3 years are more likely to be accepted in full.
- High Recent Bonus: If the latest bonus is significantly higher than usual, lenders may average your bonus income over a few years.
- One-Off Payments: Ad-hoc or non-recurring bonuses may only be partially considered or excluded altogether.
2. Documentation Requirements
Proper documentation is critical to proving your bonus income. You’ll need:
- Payslips: Clearly showing the bonus amount paid in the latest financial year.
- P60s or Tax Returns (SA302s): Demonstrating historical bonus income.
- Employer Letter: Confirming the bonus nature, payment terms, and likelihood of recurrence.
3. Lender Criteria
Different lenders have varied approaches to bonus income:
- Mainstream Lenders: Often use 50–100% of bonus income based on its consistency.
- Specialist Lenders: More likely to consider 100% of the latest bonus, especially for applicants with high earnings or strong employment profiles.
Steps to Secure a Mortgage with Your Latest Year’s Bonus
Step 1 – Calculate Your Total Income
Combine your base salary and bonus income to calculate your total assessable income. If your bonus forms a significant portion of your overall earnings, lenders may scrutinise it more thoroughly.
Example:
- Base Salary: £50,000
- Latest Bonus: £30,000
- Total Income: £80,000
This combined figure can significantly increase your borrowing potential.
Step 2 – Gather Documentation
Prepare the following documents to present a strong case:
- Payslips: Detailing the bonus amount received.
- P60s/Tax Records: Showing historical bonus trends over the past 2–3 years.
- Bank Statements: Evidence of bonus deposits.
- Employer Letter: Verifying the likelihood of future bonuses and detailing bonus structures.
Step 3 – Work with a Specialist Mortgage Broker
A mortgage broker experienced in bonus-based applications can:
- Identify lenders who are more flexible with bonus income.
- Present your case effectively, maximising the bonus percentage used in affordability assessments.
- Save you time by targeting the most suitable lenders for your circumstances.
Step 4 – Strengthen Your Financial Profile
While your bonus can boost your borrowing capacity, a strong overall financial profile improves your approval chances:
- Maintain a High Credit Score: Pay bills on time and reduce outstanding debts.
- Save for a Deposit: A deposit of 5–15% strengthens your application.
- Demonstrate Financial Stability: Avoid overdrafts and show consistent bank account management.
Case Studies
1: High Bonus Year in Sales
Emma, a sales manager, earned a base salary of £50,000 and a bonus of £30,000 last year, double her typical bonus due to exceptional performance. Her broker worked with a specialist lender who considered 100% of her bonus, despite its higher-than-average nature. This enabled her to secure a £400,000 mortgage with a 10% deposit, helping her purchase her dream home.
2: Bonus-Based Mortgage Approval
Tom, a finance professional, earned a £20,000 bonus last year in addition to his £40,000 salary. With a consistent history of bonuses over the past three years, his broker found a lender willing to use 100% of his latest bonus in the affordability assessment. This allowed Tom to secure a £300,000 mortgage at a competitive interest rate.
3: Irregular Bonuses, Flexible Solution
Priya, a contractor, earned a base salary of £60,000 and received a one-off bonus of £25,000 last year. Since her bonus was irregular, her broker identified a specialist lender who averaged her income over three years. This approach still allowed Priya to qualify for a £350,000 mortgage, enabling her to buy a city apartment.
Tips for Maximising Your Bonus’s Impact
- Negotiate with Employers: Request confirmation of bonuses in writing to strengthen your case.
- Use a Specialist Broker: Leverage their expertise to find lenders who value bonus income.
- Be Proactive with Documentation: Accurate, well-presented records can make or break your application.
In Closing
Using your latest year’s bonus to secure a mortgage is a smart way to leverage your financial success. By understanding lender criteria, preparing comprehensive documentation, and seeking professional advice, you can maximise your borrowing potential and achieve your property goals. Whether your bonus is consistent or a one-off, there are lenders willing to work with your unique financial situation.
Key Benefits of Working with a Specialist Broker
- Access to Flexible Lenders: Brokers know lenders who consider the latest year’s bonus in full.
- Tailored Advice: Brokers guide you on presenting your bonus income effectively.
- Time-Saving: They streamline the process, focusing on lenders most likely to approve your application.
Frequently Asked Questions
Q 1: Do all lenders consider the latest year’s bonus?
Ans: No, some lenders prefer to average bonuses over multiple years, but many specialist lenders accept the latest year’s bonus if it’s well-documented.
Q 2: What documents do I need to include my bonus income in my mortgage application?
Ans: Payslips, P60s, bank statements, and a letter from your employer confirming the bonus and its likelihood of recurrence.
Q 3: Can I use a one-off bonus for my mortgage application?
Ans: Yes, but lenders may require additional evidence, such as an employer letter, to confirm its reliability and recurrence.
Professional Contractor Mortgage Guidance
If you’re a contractor looking for professional mortgage guidance, we’re here to help. Our specialist knowledge and lender relationships enable us to provide expert advice tailored to your situation.
Schedule your consultation today. We’ll discuss your circumstances, explain your options, and provide honest advice about the best approach for your contractor mortgage application.
