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Lewis Posner talks us through complex income and how it could affect your mortgage application.
What is considered complex income when it comes to mortgage applications in the UK?
We’d consider complex income anything that has an element of variation in it.
That tends to be things like bonuses or commission and it can potentially come into play if you’re working overtime. Zero hour contracts is another typical one. Anything where pay is not consistent and can change over time is usually considered to be complex.
How do lenders assess different complex incomes and how do they impact the mortgage process?
Every lender is different – this is very much the theme in the mortgage world. They will generally look at the consistency of the income.
If, for example, you’re paid a commission on a monthly basis and that tends to be relatively consistent in amount and when it’s paid, they’re likely to look at it slightly differently compared to something just paid on an annual basis.
The same applies with overtime – if you’re doing regular overtime shifts every month, it’s looked at more favourably than if it’s just around Christmas or another seasonal time of year. Lenders will see that your income has inflated for that period of time.
What documentation and evidence do I need to provide to prove my complex income?
Typically you’re just looking to show general stability. Usually that comes over a longer period. If you’re paid a fixed amount monthly, the bank’s just going to look at perhaps three months’ pay slips. If it’s varying and you have different bonuses or commissions over time, they might want to look at a bigger sample period to see how steady that income is.
A common request is your P60 – a document that shows what you’ve earned in that tax year. The last two years’ P60s will show how stable that income is over a longer period of time.
On zero hour contracts, or if you are a contractor and you’re paid under an umbrella company, banks might even look at six to 12 months’ pay slips to see how consistent that income is.
What they’re ultimately trying to determine is whether your income has just been inflated for a short period or if this is what you consistently earn.
So having all those documents ready helps that process?
Absolutely. Pay evidence is one that people don’t necessarily keep for the longer term. It’s also something you’re going to have to ask your employer for. So it can be helpful to contact HR or accounting and ask for extended pay slips and your P60.
That way you’ve kind of got a good idea as to what you’ve earned, and you’ve got everything on hand. If you don’t need it, no problem, but it will save a lot of time if you have it on hand already.
What challenges might arise during the mortgage application process when declaring complex income?
The length of time you’ve been receiving that income for crops up a lot. If you’re paid an annual bonus, but you’ve only been at the company for nine months, for example, that might not be long enough to have a P60.
If you’ve straddled a tax year, you might have a P60 that only shows a few months of income. So it looks less than it would be in a typical year. So time in your current employment can sometimes be a tricky one.
Another issue is getting the bank to take into consideration all the additional income you’ve earned. Every lender works differently. You’ll find, for example, some will take an average commission over the last three months. Others might take the lowest commission figure over the last three months and use that.
Some will only take 50% of the commission into account, depending on how it’s paid. These are typical things we have to overcome if you’re not paid in a standard way.
How do I improve my chances of getting approved for a mortgage with complex income?
There’s nothing obvious. You’ll get approved, assuming everything else is correct. The biggest factor is how much you’re approved to borrow.
Lenders assess your affordability – your income versus your outgoings and how much that potential mortgage payment is going to be. The tricky element is getting you to the maximum amount you can borrow – or the amount you need.
If you are getting paid bonuses or commissions, sometimes it can help to have a letter from your employer explaining the bonus you’ve had and that this is consistent year on year.
Ultimately, getting approved is typically not the issue. It’s about making sure we can use as much of your income as possible.
Do any mortgage lenders specialise in offering mortgages to customers with complex income?
A lot of it depends on what the complexity is. Certain banks will use annual bonuses, while others are more welcoming to zero hours contracts or income from a second, part-time job.
It’s never one-size-fits-all in the mortgage world. Every lender is willing to do different things and sometimes it’s just a case of filtering through who’s right for you. That’s ultimately what our job is, and we’ve got that experience to place you depending on your income structure.
How can I calculate my borrowing capacity when I have complex income? Does it differ from regular income?
It definitely does differ. It’s a very hard thing to calculate, certainly on your own, because different banks will assess it in different ways.
One thing that we see a lot of is people who have used mortgage affordability calculators online. They put in their income and assume they can borrow that amount – but quite often that’s not the case, depending on how you’re paid. The easiest way to calculate your borrowing capacity is to actually speak to us.
What else do we need to know about mortgages with a complex income?
The biggest thing as always is to get those documents together, certainly on the pay side. So as a minimum, if you can get your P60s together to highlight a full calendar year’s earnings, that tends to be a really good starting point. It gives us a good indication as to what you’ve earned over that period of time.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.