Mortgage lenders ready to consider overtime and bonuses

Halifax has relaxed its mortgage lending rules regarding bonuses and commissions. Kate Anderson takes a look at how this could affect you.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Getting approved for a mortgage can be a nervy time. There are several hoops to jump through, with the final hurdle being the affordability test. So what if I told you that some lenders have increased the amount that workers who receive financial perks on top of their base pay can borrow?

Yep, that’s right. The likes of Halifax have relaxed their lending rules to allow employees whose income is made up of bonuses and commission to apply for a mortgage more easily.

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[top_pitch]

What’s changed?

If you have gone through the mortgage application process, then you will know that lenders allow you to borrow four to five times your salary. The catch is what they class as ‘income’.

Some will include your base salary and only half of the amount generated by commissions and bonuses. During the pandemic, a lot of mortgage lenders cut how much extra perks would count towards the overall affordability assessment. This was purely because they were worried that commission and bonuses would be the first thing to go.

The good news is that lenders are now starting to reverse this policy. Halifax has announced that perks including commission, overtime and bonuses will be factored into a revised affordability assessment that will double from 30% to 60%.

What does it mean for getting a mortgage?

It’s good news if your additional income fluctuates. It means that you have a better chance of passing Halifax’s affordability assessment with ease.

But it’s important to understand that Halifax is just one lender. As always, it is worth shopping around to try to find the best deal for you. While it’s useful to know that Halifax is willing to lend more based on flexible income, that doesn’t necessarily mean it’s your only option.

Using a debt-to-income ratio calculator can help you to get an idea of how you would perform in an affordability test. It will add up all your recurring debt payments, plus some additional items such as child and spousal support. This is then expressed as a percentage of your income.

However, if you want to get a real idea of how much you could borrow, a mortgage broker could help you out. If you don’t already have a broker, then you can find one through the online directory, Unbiased.co.uk.

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How can you get yourself mortgage ready?

Making sure you secure the best mortgage deal can be a challenge. But there are some things that you can do to pave the way:

  • Have three recent payslips and/or bank statements ready to show. If you have evidence of bonuses and commissions you have received, it may also be a good idea to have it to hand.
  • Reduce your liabilities (e.g car finance, loans, credit card debt and childcare costs).
  • Consider your spending patterns and have a think about anything that would give a lender cause for concern.
  • Save up the largest deposit you can. A large deposit usually means a lower interest rate and a smaller mortgage.
  • Check your credit score as this is something that lenders will take a look at.

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