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How to spend your bonus is one of the more pleasant decisions you make every Christmas, as the financial year draws to a close and figures are signed off. How will you spend it? Pay the school fees, clear your credit cards, head to the Caribbean…or perhaps find out how it can be leveraged and invested into property.
The UK economy hinges on its property market. A stable government and a supply and demand imbalance continue to lure investors like bees to honey. If you want your bonus to work as hard as you did to earn it, UK property remains the smart choice.
Unfortunately, however, bonuses are not the most straightforward income stream in the eyes of a lender. This can lead to frustrating and unnecessary difficulties and delays in your mortgage application.
So, where exactly can you find mortgages allowing for bonuses? And what do you have to do to qualify? Here, we share some of the tricks of the trade, and breakdown exactly what you need to know about mortgages allowing for bonuses.
There are very few hard and fast rules when it comes to mortgages allowing for bonuses – rather, several factors that determine how much of your bonus a lender will take into account. How many years you have been receiving it for, and whether it has been increasing, decreasing or remaining stable in that time, are central considerations. Lenders will also want to know the ratio of cash to shares, and whether they are immediate, vested or deferred. Other issues include the length of time you have spent with your current employer, and any background assets that could potentially be used as leverage.
If you have a solid track record, have not changed employer recently, received your last bonus in cash and can show this cash element on your P60, your chances are very good. That said, these are not prerequisites – especially if a broker like Enness is working on your behalf. One of the best things about mortgages allowing for bonuses is the degree of flexibility; applications are generally assessed on a case-by-case basis, and if a lender is satisfied by your personal profile they are free to take a view.
Bonuses are highly subjective; each lender interprets them differently, and there is plenty of scope for imagination. In general, however, high street lenders tend to shy away from issuing large mortgages allowing for bonuses. Their underwriting procedures are increasingly geared towards tick-box criteria, and borrowers who don’t conform often find themselves excluded – despite being perfectly capable of servicing a mortgage. This means a private bank is often the best option for borrowers who need their bonus to pass affordability checks. Because these banks are not driven by volume business in the way high street lenders are, they are generally better able to cater for specific circumstances.
The big problem for borrowers is getting access to these private banks. Often, they operate on an invitation-only basis, meaning that without help, you haven’t a hope of securing a mortgage with them. Engaging an independent, whole-of-market broker to act as an intercessory is the only way to get access to their best deals. The good news is that Enness works with 147 lenders, and thousands of different mortgage products are available to us. More than half our lenders are private banks who create bespoke solutions for our clients.
Mortgages allowing for bonuses generally have more scope for creativity than other financing solutions, and you are able to structure the loan in accordance with your priorities. If your priority is to have 100% of your bonus income take into account, it may involve a slightly higher interest rate or lender fee, sacrificing some of the loan to repayment, committing to annual bullet repayments, or putting cash or assets with the bank. Private banks are much more flexible and understanding when it comes to lending; as a trade-off, however, they sometimes ask that assets are moved across to sit on their balance sheets. This naturally drives the rate down even further, and can be a real advantage if the borrower has, for example, a stock portfolio or shares to leverage. You have plenty of options, and we have plenty of ideas, which we’ll weigh up together.
We believe strongly in keeping our clients as informed as possible, and we hope you have found this useful. For more details, please do have a flick through our guide library, where you will find in-depth, market-leading whitepapers on the mortgage process as well as specific product-related information.
If you have any questions about this article, or the mortgage process generally, please do get in touch.