More people than ever receive income in the form of a bonus from their employer, in the form of cash or shares, payed annually or monthly howevr its harder than ever to get mortgage lenders to use your bonus income fully. Many of the clients we help are bankers in the City whose income is split between a basic salary and a bonus. For example, a banker’s basic salary may be £150,000 with a £300,000 bonus, which is made up of both stock and cash. The stock element is often deferred for a year or two and the employee will have to wait until then to decide whether to withdraw it as cash. When it comes to assessing affordability, many high street banks will only take 50% of the cash bonus into account and exclude 100% of the stock bonus because of the deferred element. This restricts the client’s borrowing potential and is not taking into consideration their total compensation.
Even though you may think you’re secure with a permanent employment contract and the benefits of a bonus, lenders will nearly always struggle with any form of income that isn’t in cash, regardless of your employment status and personal wealth. Although some lenders will have more of an open mind to bonus income if it’s in cash, bonuses are generally considered inconsistent and unpredictable compared to a set salary. Because of this, some lenders tend to shy away from anything more than one income stream.
A typical scenario would be a buyer in their 30s who wants to buy a £2million home for their family close to London – a bank will only lend them on average 4.5 times their income, whilst essentially cutting their bonus income in half and ignoring the stock income completely. More often than not, this doesn’t give the client enough of a lend preventing them from buying their dream home – especially as recent Savills research shows that 45% of £1million homes in the capital only have one or two bedrooms, so they need the ability to borrow more to afford enough space.
We have one of the widest networks of lenders in the industry and as such can assist with the most complex cases, including clients who wish to use bonus income to prove affordability. For example, for those whose bonus is monthly we work with a lender who will look at one years’ worth of a client’s accounts, rather than the typical two or three. For clients whose bonus is deferred, we have a relationship with a private bank who will accept it, providing they can prove strong overall wealth outside the mortgage. For example, we recently helped a client to secure a £2.1million loan at 70% loan to value and fixed rate of 2.58% using their bonus income, including vested stock. You can read the case study of how this was achieved here.
For more information about how we can help you secure a mortgage using your bonus income, speak to one of our expert brokers today and we will take the time to answer your questions and understand your situation in full.