If you receive a regular bonus at work you may be wondering if it’ll help you borrow more when it comes to getting a mortgage?
Read on and we’ll help guide you through it.
Do bonuses count as income for mortgages?
While bonuses don’t tend to be seen as such a reliable source of income as a monthly salary, most lenders will consider them when they are assessing affordability. However, the extent to which they can contribute will vary by lender.
While lenders will take 100% of your regular salary, most will only factor in part of your bonus for affordability. Many lenders will consider somewhere in the region of 50-75% of the total bonus amount. However, it can be less than that, while others will consider it all!
To help your lender evaluate your bonus, make sure you have plenty of evidence of the payments. This could be bank statements, payslips, or annual HMRC tax summaries, for example.
Many lenders will ask you to provide this information for a specific time period. This could be up to two or three years but will vary by lender. Some will ask for a longer period while others will require less. This is so they can assess how certain your bonus income is, which will help them to process your application.
Does an annual bonus count towards a mortgage?
Some lenders will look at the average over the last two to three years. Others may use the most recent amount. They’ll then take a percentage of it to assess your affordability. Some lenders may be happy to consider your full annual bonus, if it’s been paid consistently over a period of time.
Does it matter if the bonus is paid annually, half-yearly, quarterly, or monthly?
Most lenders will be open to considering bonuses regardless of how often they’re paid. However, as with the other elements of their decision, how they evaluate it will vary by lender.
Monthly bonuses may be easier to evidence. As they are paid regularly, they can easily be seen on payslips.
If you receive a bonus less frequently, demonstrating a track record can be trickier. You might have to provide evidence of payments over a longer period, although this will vary by lender.
How to calculate bonus income for a mortgage
The percentage of your bonus that lenders will consider can depend on several factors:
Track record: lenders will look at how consistently you’ve received a bonus over a set period.
Verification: being able to provide documents such as payslips and P60s is essential for some lenders.
Type of bonus: your bonus may be based on your performance, your contract, your team’s performance, or your company’s performance. The type of bonus structure may impact how much of it the lender will use.
How much of your income it accounts for: lenders may be more cautious where the majority of income is made up from bonus or commission payments.
Which mortgage lenders accept bonuses?
There are no blanket rules when it comes to lenders’ willingness to consider bonuses. Most will accept them, but their approaches will differ.
At Suffolk Building Society we’re always keen to lend and will look at each case individually. We usually accept up to 75% of income earned from bonuses and commission, if you have a proven track record of receiving them.
If you’d like your bonus or commission to be included in your affordability calculations when you apply for a mortgage, make sure you’re clear on how the lender will treat it. And as always, if in doubt, speak to a mortgage adviser or broker for advice.
If you want to get started today, why not complete our decision in principle form? It only takes around 10 minutes and will give you an idea of how much you could borrow.
