Bonuses often make up large parts of an employee’s income. And it’s not only banking professionals who receive them. Solicitors, accountants and even doctors may receive a bonus by way of a rewarding successful year and/or an incentive to keep a good employee at a company.
When applying your bonus to a mortgage application, lenders have different criteria as to what/and how much they will accept. Therefore, it is imperative you speak to a broker to make sure income is looked at in its entirety and matched with the best lender.
If you have been with the same company for a long time and have a good bonus history it is likely most lenders will look upon this favourably, however not all clients who receive bonuses have a perfect track record. Most high-street lenders will want to see a 3-year history; however some lenders will look favourably on 2-year history or just the one year’s bonus.
It may be that you have recently moved company and you only have one year’s bonus at your new company but a good track record elsewhere. Again, most lenders particularly on the high-street will not look favourably at this scenario but there are specialist building societies and lenders for professionals that have the potential to look at the bigger picture and look more positively at the client’s needs.
If you want to make your bonus stretch as far as possible to afford that dream home, different lenders will use different percentages of the bonus in their multiples. Most lenders will max out at 50% of a bonus as it isn’t guaranteed income but again, due to our relationship with specific lenders we can look to use 75% or even 100% of a bonus being paid when working out the size of the mortgage available.
Whether you have just been paid your first bonus and are looking to get on the housing ladder or have been with the same company for some time with a bonus track record, you need to speak to a broker to maximise your bonus when looking at mortgage options. Enness have developed excellent relationships with numerous lenders in order to make sure our clients make the very most out of their specific bonus and bonus history.
An example of where our advice has proved crucial to a client using bonus income to secure a loan was completed by Enness Mortgage Broker, Harley Allen. His client was a married, private equity professional, who had been referred to Enness by a friend who had a similar bonus income issue.
The client was looking to remortgage his £1.3m West London home to raise capital for an investment property purchase. He had a £500k outstanding first charge on a poor rate with his current lender, and was looking to raise a further £300k.
Harley encountered a problem, as his client moved jobs six months ago, taking a higher basic salary and a bonus based on his performance during this period. To secure a loan with bonus income, a lender would typically look for at least a 2 year bonus history in the same role, to then use 50%.
Due to Enness’ relationship with the private bank as well as the track record of the bonuses previously, the lender Harley used were able to gross up the 6 month bonus to reflect what the client would have been given had he been in his new role for a year – effectively using 100% of the bonus income.
Harley managed to secure a 2 year fixed rate of 2.44% over a 25 year period for a very happy client.
For a consultation on how we can make your bonus work best for you when applying for a mortgage, please get in touch with one of our expert brokers.