A lot of our clients have received their annual bonus recently which, in most cases, can make up a significant percentage of their income. These bonus payments can play a big role in whether or not a client can borrow the amount they need for their dream home.
There are several factors that lenders will look at when lending against a bonus:
1. Number of years bonus – many of the biggest lenders want a history of two years of annual bonus at the same firm before they’ll consider lending against this income.
2. Percentage of bonus – as an annual bonus isn’t guaranteed, most lenders won’t take all of it into account; most take 50% of the bonus but some will go as high as 100% with a substantial bonus track record.
3. Bonus paid in anything other than cash – any calculations are based upon the paid cash element, not the total bonus statement. Lenders won’t generally consider any bonus that is being held in shares which will vest after a certain amount of time. They may accept the argument these vesting shares can be used to cover school fees removing that debt from the calculation.
4. Bonus paid in anything other than Sterling – most banks don’t lend on a bonus not in GBP. It’s not a deal-breaker but if it’s not in pounds the actual amount (after exchange and interest rates) the lender will consider is minimal.
5. Bonus in your previous job – most lenders will only lend against a bonus with your current employer; if you’ve recently moved job, most lenders will ignore your previous bonus regardless of your track record.
6. Guaranteed bonus – a lot of lenders are okay with a bonus that is guaranteed in a new job and some lenders even take 100% of a guaranteed bonus.
7. Salary sacrifice into your pension – most lenders will look at the amount that appears on your payslip, they don’t care about your reasons for wanting to reduce the cash paid element of your bonus. But some lenders will factor the sacrifice into a client’s income calculation, if you can prove the bonus sacrifice.
8. Declining bonus – if your bonus is less than the previous year, you may have to explain why and reassure the lender that a pattern isn’t emerging.
9. Future or predicted bonus – this has no value to a lender as it hasn’t happened yet; I don’t know a lender that will work off anything other than what you can prove.
To secure the maximum mortgage using your bonus there are a lot of detailed criteria you need to consider; at LIFT-Mortgages we deal with the above issues and more on a day-to-day basis. If you would like help and advice on how to get your dream home, give us a call on 0161 929 2613 or email email@example.com.