Can I Include Annual Bonus on Mortgage Application?

[cherie171]

Slight background for context: recently separated from my husband, our joint house is sold, so we will be splitting the equity 50:50. I've had an offer accepted on Saturday for a property, and I will be doing the proper mortgage application as soon as I can get an appointment arranged. I already have a decision in principle based on my basic salary, so no concern about actually getting one.

However, the juggling of numbers has been quite tight, and if I can include my relative small annual bonus in the calculations, it will mean that we won't have to change the equity split from 50:50. Although husband has very generously said that he will help out with any slight differences, I don't want to impose on his goodwill if I can help it.

The bonus is discretionary, but that's a formality, as we all get it every year. It's confirmed in January with the annual pay rise, and paid out in March so that it's at the end of the financial year. I have written confirmation of the amount. It's not huge, but it would be enough to make a difference, and would only add about £20 on to the monthly mortgage payments, so affordability isn't an issue.

I just wondered if any of the experts here know whether the lender will want to, or be able to include it for the purposes of the application. It's not the end of the world if they can't, but I figured it would be worth asking.

[Sarnie]

You can't lend against income you haven't earned yet.......but you can you lend against your previous bonus income, most lenders will average the last two years figures.......

[Europa1]

I'd be surprised if you could, OP. The lender will focus on the word "discretionary" that's in black and white in your employment contract, and not the "well, it's always paid" custom and practice.

Particularly in the current climate.

[craigjm]

The first answer is from a well respected mortgage broker so that really ends discussion

[cherie171]

Sarnie said:

You can't lend against income you haven't earned yet.......but you can you lend against your previous bonus income, most lenders will average the last two years figures.......

The amount of the bonus is consistent, and I have the previous years letter to back it up. Would that mean that I may as well ask? The worst they can say is no...

[unident]

Sarnie said:

You can't lend against income you haven't earned yet.......but you can you lend against your previous bonus income, most lenders will average the last two years figures.......

That doesn’t make a lot of sense to me. Firstly, you must mean borrow not lend, secondly surely all borrowing is against future unearned income, as you will be using that to repay the loan, not past earnings.

[Sarnie]

cherie171 said:

The amount of the bonus is consistent, and I have the previous years letter to back it up. Would that mean that I may as well ask? The worst they can say is no...

Yes, you will be able to use it, you'll just need to provide the previous two years pay slips showing the bonus on them......

[Sarnie]

unident said:

That doesn’t make a lot of sense to me. Firstly, you must mean borrow not lend, secondly surely all borrowing is against future unearned income, as you will be using that to repay the loan, not past earnings.

Basic pay is contractual and consistent and can be evidenced from recent pay slips.

Bonus is usually variable and discretionary, so the only way to assess it conservatively is an average of the previous two years bonus payments.

I'm not saying it makes sense, just how it works.............

[sc0tt]

Sarnie said:

cherie171 said:

The amount of the bonus is consistent, and I have the previous years letter to back it up. Would that mean that I may as well ask? The worst they can say is no...

Yes, you will be able to use it, you'll just need to provide the previous two years pay slips showing the bonus on them......

Cherie, give Sarnie a call. I just completed my remortgage with him and the whole process couldn’t have been more simple.

[MOBB]

^ this

[unident]

Sarnie said:

unident said:

That doesn’t make a lot of sense to me. Firstly, you must mean borrow not lend, secondly surely all borrowing is against future unearned income, as you will be using that to repay the loan, not past earnings.

Basic pay is contractual and consistent and can be evidenced from recent pay slips.

Bonus is usually variable and discretionary, so the only way to assess it conservatively is an average of the previous two years bonus payments.

I'm not saying it makes sense, just how it works.............

Sorry, I think we’re at cross purposes. It was the use of you and lend vs you and borrow or the lender and lend. My point around historically earned vs future income was purely that the lender is surely lending on the basis that your future income will at least match the historic income that they look for. They may lend against what they see as historic income, but rely on future income to actually service the debt.

[Sarnie]

unident said:

Sorry, I think we’re at cross purposes. It was the use of you and lend vs you and borrow or the lender and lend. My point around historically earned vs future income was purely that the lender is surely lending on the basis that your future income will at least match the historic income that they look for. They may lend against what they see as historic income, but rely on future income to actually service the debt.

.....all mortgages are reliant on future income to service the debt.

[unident]

Sarnie said:

.....all mortgages are reliant on future income to service the debt.

I still think you are missing my point and I think it’s deliberate now, so I’ll bow out.

[devnull]

When I applied for my nationwide mortgage, we didn't take my quarterly compensation payout into consideration. It was based off my guaranteed base pay (not even my car allowance, which is just unpensionable income). I'd have rather it been that way to be honest.

[xjay1337]

unident said:

I still think you are missing my point and I think it’s deliberate now, so I’ll bow out.

You know Sarnie is a long-standing mortgage advisor?

He sorted my mortgage out, great guy and will be in contact in a couple of years when we come to move.

Think he knows what he's talking about tbf!

[selym]

xjay1337 said:

unident said:

I still think you are missing my point and I think it’s deliberate now, so I’ll bow out.

You know Sarnie is a long-standing mortgage advisor?

He sorted my mortgage out, great guy and will be in contact in a couple of years when we come to move.

Think he knows what he's talking about tbf!

It makes no odds on PH, Unident has a long and illustrious career as a poster ahead of him!

[Sarnie]

It's all good, we are all friends here!

[cherie171]

A quick update.

The bank (Nationwide) were happy to include the bonus with the two relevant payslips, which increased the amount they let me borrow by a small amount, but enough to make the purchase less stressful. All done over the phone too, as they're obviously not allowing face to face meetings at the moment. ANd as I'm porting an existing mortgage (albeit from joint to singular), they didn't need any further ID.

Thankfully the LTV percentage is below the 60%, which I think helped their system to decide that there was no requirement for a physical valuation survey. If one had been required, it would have delayed the application until we're out the other side of the lockdown.

Now to just wait and see what the solicitors are able to do.

Edited by cherie171 on Friday 27th March 13:11

[Sarnie]

cherie171 said:

A quick update.

The bank (Nationwide) were happy to include the bonus with the two relevant payslips, which increased the amount they let me borrow by a small amount, but enough to make the purchase less stressful. All done over the phone too, as they're obviously not allowing face to face meetings at the moment.

Thankfully the LTV percentage is below the 60%, which I think helped their system to decide that there was no requirement for a physical valuation survey. If one had been required, it would have delayed the application until we're out the other side of the lockdown.

Now to just wait and see what the solicitors are able to do.

We've had completions all this week so there shouldn't be any issues, it can all be done remotely......

[cherie171]

I knew it could be done, but there was no offer of that initially, so I was pleasantly surprised and relieved.


I thought it'd be helpful to offer a confirmed conclusion to my initial question, as that tends to be a rarity in many threads!