With more people receiving income from multiple sources than ever before, the trials of securing a mortgage with complex income can seem nonsensical. Essentially, the less ‘vanilla’ your financial profile is, the more likely you are to face challenges along the way.
A complex income structure more or less covers anything from bonus income, stocks and shares to foreign currency, pension and rental income – and almost everything in between. Yet the general consensus from lenders on the high street is to steer clear of applications including anything of the sort, leaving many borrowers out in the cold when it comes to securing their mortgage, even if they are ‘asset-rich’ and more than able to afford it.
We understand the twists and turns of the mortgage market better than most, and the rippling effects for those with complex income. So we’ve put together our top 5 tips to help you stay afloat and ride the current to achieving your financial goal.
Lenders will struggle with anything that isn’t cash
One of the central things to bear in mind when applying for a mortgage with complex income is that high street lenders tend to always shy away from more than one income stream, be it retained profit, pension income, bonus income or that of a foreign currency. Essentially anything that isn’t in the form of a standard PAYE salary or cash.
Regardless of your employment status or personal wealth, if you receive bonus income, the security that should go hand in hand with a permanent employment contract is generally unaccountable in the eyes of a lender. They simply regard bonus income or anything that isn’t a permanent arrangement as ‘irregular income’ and therefore shy away from factoring this into their affordability calculations – a consequence of the 2014 Mortgage Market Review.
Private or specialist banks are the best option
Supposedly less typical income streams will nearly always be deemed an unviable option from high street lenders, as they are generally considered ‘irregular’ or ‘unstable’ falling outside of tick-box criteria. Essentially, lenders are looking to determine a steady income with no large outgoings in calculating affordability. The aim is to ensure the client has sufficient margins to cover their monthly repayments. However, private or challenger banks will actively avoid unnecessary restrictions, rejections and complications to your application.
Assessing each case individually, this allows underwriters to concentrate on a client’s entire wealth and consider a wider array of applicants as a result. Proceeding with in-depth assessments ensures you benefit from a more holistic approach than the usual high street requirements, thus creating a bespoke product for your situation.
Lender requirements have changed
When determining how much you can borrow, the days of simply presenting the income as shown on your P60 or payslip are all but a distant memory. Nowadays, everything from the type of mortgage you’re looking for to your income and outgoings will be presented in your application. Equally, it is crucial to determine how much of a deposit you can afford beforehand. Lenders often apply a maximum loan amount when the deposit is only a small percentage of the property value. Although varying from lender to lender, the majority will calculate this based on your total income, including your salary, any bonuses and dividends, or whether you’re self-employed, a shareholder or foreign investor.
Your credit history and financial outgoings such as school fees and holidays will also need to be presented with your application to ensure you can afford the addition of your mortgage payments. The aforementioned requirements may seem excessive yet the process doesn’t have to be complex. When working with a broker like Enness, we will package your application with everything the lender needs and ensure the best loan amount available to you, regardless.
The differences for self-employed and employed applicants
Some lenders will have an open mind when it comes to bonus income, however bonuses via stock or shares are likely to cause a few hurdles. Although often lucrative for the employee dependent on stock market activity, many companies will hold stock shares for at least 2 years as an incentive before the employee can access them. Luckily, if the value goes up – as does your bonus. Lenders are generally wary when it comes to deferred stock however, as they are unable to predict the consistency nor amount received.
For the self-employed, on the other hand, lenders will normally ask you for a combination of tax return documents, proof of income as derived from SA302s or 2 to 3 years’ worth of accounts. However, compared to the computer algorithms used by high street lenders when calculating affordability, private banks view the entirety of your income. This is particularly beneficial for those with retained profits of which they only take a modest tax-free personal income from, or for business owners with Director’s Loans, who essentially take out money other than a salary, dividend or expenses from their company.
What other types of income are considered complex
Many other types of income are also covered by the ‘complex’ umbrella. If you’re an expat living overseas or a foreign national receiving income from abroad (even if it is originally earned in the UK), both foreign currency and income nearly always pose a challenge. However, with the Mortgage Credit Directive (MCD) coming into force earlier this year, borrowers applying for a Foreign Currency Loan have the option to switch the mortgage to the same currency as their earnings or residence (if the two currencies fluctuate by 20%).
Pension and shares income can equally cause problems due to the unpredictable nature of their value. Even if you’re a retired individual with a wealth of assets, pensioners who do not earn a set salary are likely to struggle. This is also often the case for those receiving rental income from a buy to let property. Due to the reliance on tenants to pay rent and the buy to let market being vulnerable to external influences for buy to let properties.
Overall, the message is rather consistent: if your income comprises of more than one stream, your case will be considered complex by a lender. Because of this, we would always recommend you use an expert broker to help guide you with your application. The mortgage market can seem daunting when entering with complex income luggage, so they will be able to present your application in the best way possible to a lender who will consider your total personal wealth. As well as this, a broker will advise you on the most beneficial option for your circumstances, to ensure you secure the best possible loan dependent to your preferences.
We believe strongly in keeping our clients as informed as possible and we hope you have found this useful. For more details, please do have a flick through our guide library, where you will find in-depth, market-leading whitepapers on the mortgage process and specific product-related information.
If you have any questions about this article, or the process of securing a mortgage with complex income in general, please do not hesitate to get in touch.