Which mortgage lenders let you use your bonuses to secure a loan?

How these bonus-friendly mortgage lenders could let you borrow 10% more to secure your dream home

  • Most lenders take only half of your bonus income into account when assessing whether you can afford a mortgage 
  • But Metro Bank, Skipton Building Society and Bank of Ireland consider all of your of bonus when calculating affordability
  • This means those with high bonuses will have access to much larger mortgages

Those looking to buy a home in 2020 may be able to use a Christmas or New Year’s bonus to boost their borrowing power by up to £33,000.

Numbers crunched by mortgage broker Private Finance reveal that picking a ‘bonus-friendly’ mortgage could add a significant chunk onto the amount some workers could borrow.

In most cases, lenders allow 50 per cent of the average bonus pay received over the past two years to be added to a borrower’s salaried income when making affordability calculations.

It’s these calculations that determine how much a borrower can afford to borrow, and ultimately decide the size of the loan.

The reasoning is that there is no cast-iron guarantee that future bonuses will match past ones – meaning a borrower could potentially end up with a mortgage they can’t afford.

Some lenders take 100 per cent of your average bonus over the past two years into account

Some lenders however will accept 100 per cent of the average bonus over the past two years.

This means they will base the size of the loan on the assumption that future bonuses will match or exceed those you’ve earned in the past.

This can make a significant difference to the amount buyers can borrow, particularly for those in high-bonus jobs.

For example, according to the Office for National Statistics, sales and marketing directors receive a median bonus at £14,448 on top of their annual income of £75,184.

Based on these figures, an industry-standard mortgage product would allow a single buyer to borrow up to £370,836, according to Private Finance.

However, a mortgage with more bonus-friendly criteria would allow the same buyer to borrow up to £403,344 – a difference of £32,508 and 9 per cent more.

Similarly, workers in the City of London – who receive average bonuses of £8,391 on top of an annual salary of £58,168 – could borrow £299,462 instead of £280,582 by opting for a bonus-friendly product, a difference of £18,880 or 7 per cent.

But it’s not just highly-paid directors and City traders who could benefit from this type of deal. Even the average UK worker – who receives a typical annual income of £24,897 and bonus pay of £1,329 – could add £3,000 to the amount they can borrow, up from £115,027 to £118,017, which might make the difference to being able to afford their preferred home.

These deals could be especially useful for those working in careers such as sales where a large proportion of income is made up by bonuses.

Shaun Church, director at Private Finance, said: ‘Mortgage lenders can be reluctant to include bonus payments in affordability calculations as generally, they’re not guaranteed, and the amount can vary significantly from year to year.

‘However, for those in highly paid professions where bonus pay is not just common but expected, it can form a significant chunk of their finances and make a real difference in terms of the type of property they can afford to purchase.’

Which lenders are best for bonuses?

Metro Bank, Skipton Building Society and Bank of Ireland all consider 100 per cent of bonuses when assessing mortgage affordability.

Some smaller building societies are likely to consider 100 per cent of bonuses on a case by case basis.

Santander, Nationwide and NatWest are also generous when taking monthly commission into consideration, according to Private Finance.

This can be particularly important if you work in a commission-focused role such as an estate agent.

Lenders in general are more likely to take your bonuses into account if you receive them at regular intervals such as weekly, monthly or quarterly, and if your payments have been fairly consistent for some time, according to mortgage brokers L&C.

If you’re considering a mortgage and some of your income is made up of bonuses, an independent adviser will be able to help you pick the right lender. You can find one by clicking here.

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