For professionals whose earnings include substantial bonus income, securing a mortgage that considers 100% of this variable income can significantly increase borrowing potential. However, not all lenders view bonus income equally and demonstrating stability and consistency is key to having it fully recognised.
This guide will help you navigate the process, from understanding lender criteria to presenting your bonus income effectively, so you can maximise your mortgage affordability.
Can Bonus Income Be Used for Mortgage Applications?
Yes, many lenders include bonus income when assessing affordability. While some consider only a portion (e.g., 50% or 60%), others may account for 100% of your bonus income, provided you can demonstrate a stable and consistent history of receiving bonuses.
Lenders are particularly open to this approach for applicants with high earnings or roles where bonuses are a predictable part of the compensation package.
Factors Lenders Consider When Evaluating Bonus Income
1. Consistency of Bonuses
Consistency is one of the most critical factors lenders assess. To consider 100% of your bonus income, lenders will typically require evidence of regular bonus payments over the past 1–3 years.
- Annual Bonuses: Easier to verify and generally preferred by lenders over sporadic payments.
- Performance-Based Bonuses: May require additional documentation to confirm reliability.
Tip: Use payslips and P60s to demonstrate a stable history of bonus income.
2. Documentation Requirements
To include 100% of your bonus income in affordability calculations, you’ll need to provide comprehensive documentation:
- Payslips: Typically covering the last 3–6 months to show bonus payments.
- P60s or Tax Returns: Verifying annual bonus totals for the past 1–3 years.
- Bank Statements: Showing consistent deposits of bonus payments.
- Employer Letter: Confirming eligibility for future bonuses, if applicable.
Tip: Having clear, organised documentation will strengthen your application.
3. Lender Criteria
Different lenders have varying approaches to bonus income:
- Specialist Lenders: More likely to consider 100% of bonus income, particularly for high earners or applicants with consistent payment histories.
- High Street Lenders: Often cap the proportion of bonus income they’ll consider at 50–75%.
- Bonus Reliance: If your bonus constitutes a large portion of your income, lenders may assess your financial stability more closely.
Tip: Work with a mortgage broker to identify lenders that cater to applicants with substantial bonus income.
Key Benefits of Working with a Specialist Broker
- Access to Flexible Lenders: Brokers know which lenders consider 100% of bonus income.
- Tailored Applications: Brokers can present your case in the best possible light.
- Time-Saving: They match you with lenders that suit your financial profile.
Steps to Secure a Mortgage with Bonus Income
Step 1 – Calculate Your Bonus Contribution
Start by determining how much of your total income comes from bonuses. Lenders will typically evaluate:
- Base Salary: Your guaranteed annual income.
- Average Annual Bonus: Calculated over the last 1–3 years.
- Future Bonus Potential: Supported by a letter from your employer if bonuses are expected to continue.
Step 2 – Gather Documentation
Prepare thorough documentation to validate your bonus income:
- Payslips: Showing regular bonuses over the past several months.
- P60s or Tax Returns: Demonstrating annual bonus totals.
- Bank Statements: Verifying bonus payments.
- Employer Letter: Confirming future eligibility for bonuses.
Step 3 – Work with a Specialist Mortgage Broker
A mortgage broker experienced with bonus income applicants can:
- Identify lenders that consider 100% of your bonus income.
- Present your application effectively to maximise borrowing potential.
- Save time by focusing on lenders most likely to approve your mortgage.
Why It Helps: Brokers understand the nuances of bonus income and can connect you with lenders who are more flexible with their criteria.
Step 4 – Strengthen Your Overall Application
Lenders are more likely to approve applications where other financial factors are strong. To improve your chances:
- Maintain a Good Credit Score: Pay bills on time and reduce existing debts.
- Save for a Sufficient Deposit: A deposit of 10–15% is typically expected.
- Demonstrate Low Debt-to-Income Ratios: Keeping other debts low reassures lenders of your financial stability.
Case Studies
Case Study 1: High Earner with Regular Annual Bonuses
Emma, a marketing director, earns a base salary of £60,000 and has received consistent annual performance bonuses of £20,000 over the past three years. Her broker worked with a lender willing to consider 100% of her bonus income, allowing her to secure a £450,000 mortgage with a 10% deposit.
Case Study 2: Variable Bonuses from Commission-Based Work
Tom, a sales executive, has a base salary of £40,000 but earns between £10,000 and £25,000 annually in bonuses, depending on his performance. Over three years, his bonuses averaged £18,000. His broker matched him with a specialist lender that averaged his bonus income, enabling him to secure a £300,000 mortgage with a competitive interest rate.
Conclusion
Including 100% of your bonus income in mortgage affordability calculations can significantly boost your borrowing potential. However, it requires demonstrating consistency and stability in receiving bonuses, supported by thorough documentation and a strong overall financial profile.
Specialist mortgage brokers can help identify lenders willing to consider your full bonus income, making the process more efficient and tailored to your needs. With careful preparation and the right lender, securing a mortgage with your bonus income is well within reach.
Frequently Asked Questions
Q 1: Do all lenders consider 100% of bonus income?
Ans: No, some lenders only include 50–75% of bonus income. Specialist lenders are more likely to accept 100%.
Q 2: What documents are required to include bonus income in my application?
Ans: Payslips, P60s, bank statements, and an employer letter confirming bonus consistency and expectations.
Q 3: How does bonus income affect borrowing potential?
Ans: Including 100% of your bonus income increases your borrowing capacity, as it raises your total assessable income.
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.
