High street mortgage lenders are famously strict with their lending rules. It can seem that unless you work in the kind of job that pays a substantial and regular salary, owning your own home is impossible. Thankfully that’s not the case, and with The Mortgage Hut you will find it’s a lot easier than you first though. We work with many customers for whom a large portion of their income come from commission or annual bonuses and we can help you get a deal too!

Obtaining a mortgage with a commission based income

Many top earners across the UK work with a performance based contract, whether sales people exceeding their targets each month or employees of companies with a bonus system based on key performance indicators (KPIs). In the past, a fluctuating income in this way would be discounted when calculating mortgage affordability, but modern lenders are willing to look at every part of an income when determining their mortgage terms and will take consideration of all regular payments.

How lenders view bonus income when determining mortgage eligibility

As each lender has their own terms, it is down to the individual provider how they consider your additional income. This is advantageous when working through a mortgage advisor like The Mortgage Hut as it provides a wide range of options that we can choose from and enables us to pick a mortgage deal that best fits your personal circumstance.

Examples of commission and bonus acceptance range as follows:

Full acceptance
Some lenders will consider your entire evidenced income, irrespective of source.

Full acceptance with cap
Often, lenders place a cap based on your salary for commission and bonuses. This may be 50%, 75% or 100% of your salary.

Any bonuses that exceed your base salary will be ignored for the purposes of determining your mortgage size, but are often taken into account when determining overall affordability.

For example, with a 75% cap, if your base salary is £23,000 and you make £2,000 per month in commission, only £17,250 of your annual commission will be counted, with the remaining £6,750 ignored for the purposes of mortgage size. The total income that will be used in calculations will be £40,750.

Monthly commission only
Some lenders choose to consider only commission paid monthly, as this regular payment is in line with your mortgage repayments. Others will consider monthly and quarterly, while some are happy to take annual bonuses and commission payments into account. It is important to make the timing of your commission payments known when you are looking for a mortgage.

Stable commission only
Depending on your job, your commission may be generally stable (showing to fluctuate less than 20% per month, for example), or may be extremely volatile, ranging from zero to thousands depending on your performance at work. Many lenders are more likely to accept your commission as income if it is shown to be stable, concerned that you might fall behind with mortgage payments if you are unable to keep up with your work targets for a while.

How your income size affects your mortgage

Income is used to calculate your maximum loan size. Most lenders are happy with a four times (4x) rate, setting your mortgage size to four times your annual income, some will stretch to 5x and in the right circumstances a 6x mortgage is possible.

If you can show basic salary of £24,500 and additional commission of £1,000 average a month, you will be looking for a calculation based on a total income of £36,500. At 4x this would be a mortgage level of £146,000 and at 5x £182,500.

For an accurate calculation and quote, use our mortgage calculator and see what size properties you could afford.

Understanding affordability – how income affects your deal

An important calculation for the mortgage lenders is your affordability. This can be thought of as the difference between your regular income and your outgoings. If you reach the end of each month in your overdraft and desperate for the next pay cheque then your affordability is low and the terms of your mortgage will be less favourable. If you have plenty of spare cash in the run up to pay day, then your affordability is high and you’ll find there’s a range of mortgages to choose from with great rates.

It’s worth spending a few months living a little tighter so that when you make your application, your affordability is the best it can be.

Proving your income – making sure you have evidence

Your base salary will be shown in your contract of employment, but your commission and bonuses won’t be able to be evidenced until you have been in the job for a while and have the payslips to prove income.

For this reason, many lenders won’t allow you to apply based on commission until you have been in the job for more than a year, and some will insist on two or even three years of historical records before agreeing to accept your commission as regular income.

It can even be a little more complicated that that, with lenders willing to accept 25% of your commission in the first year, 50% after 12 months, and 100% after two years. Again, different lenders will set different rules.

If you are in the early months of your job, you may be able to negotiate this fact, but you should be prepared for lenders to offer you a maximum mortgage based on your core salary only.

In every case, you need to make sure you keep all your payslips and annual P60. If you are missing these then you can request copies to be made from your company HR department.

Part time jobs and bonus income

Many part time jobs use a bonus system for bumping up the basic salary. One typical example is in the service industry, where shift work and tips are the norm. Like sales commission, tips represent a fluctuating (but sometimes stable) additional working income.

It is not unusual to find that tips go unreported, especially those given in cash. If you are looking to obtain a mortgage, however, it is important that all your income is properly detailed and verified. Unofficial tips, rather than improving your chances and boosting your affordability, could simply fail to be considered, leaving you short for your intended mortgage.

When you have a part time job and smaller salary, every additional proof of income you can produce will help. The friendliest lenders will take it all into consideration, so make sure you properly declare and document all your income.

Commission lending specialists and bad credit

At The Mortgage Hut we work with many specialist lenders willing to take commission into account, and we work with lenders happy to look at bad credit applicants. The crossover of those who take on both, however, is a lot smaller.

Thankfully, it does exist.

When talking to us about your mortgage, make sure you are open and honest about everything you feel could be a problem and we’ll be able to properly target the right mortgage lenders for you.

For more information on bad credit mortgages, read our articles here.

More advice on bonus and commission-based mortgages from The Mortgage Hut

At The Mortgage Hut we work with you to determine the perfect mortgage package and match you to a lender who can deliver. For a free no-obligation quote and some expert advice fill in our simple contact form and one of the team will get back to you without delay – or, if you want to speak immediately, just pick up the phone and give us a call!

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