Can Bonus and Commission Income Be Used in a Mortgage Application?

Optimising your borrowing power could be the difference between your dream property or having to continue your search elsewhere. But can bonus income be used for a mortgage?

If your basic salary only shows part of the story, then additional earnings from bonuses and commission could help strengthen your mortgage application and potentially lead to an increase in the total amount you would be able to borrow.

The catch, however, is that lenders will not always assess additional income in the same way. To make the most out of your income, the key is to understand exactly how lenders calculate different forms of additional earnings and to know what evidence you will need to provide.

In this article, we cover everything you need to know about how lenders assess bonus and commission income, what evidence is required, and how using bonus income for a mortgage application could help increase your total borrowing power. Let’s begin.

What Types of Variable Income Do Lenders Accept?

A variable income mortgage can refer to mortgage applications that include different incomes, such as bonuses, commission, overtime, shift allowances, or income from a second job.

Many lenders will consider a wide range of additional income sources when assessing affordability, but will always require sufficient evidence that the income has been received consistently and is likely to continue.

While each lender’s criteria can vary, the following table highlights some of the most common types of income that can be used to help support a mortgage with bonus income, mortgage with commission income, or other forms of additional earnings.

A crucial point to keep in mind is that not all lenders will assess additional earnings in the same way. In fact, the way a lender assesses additional earnings could have a significant impact on how much you will be able to borrow.

For example, while some lenders may be comfortable with applying a large proportion of bonus or commission earnings into affordability calculations, there are others who may take a more cautious approach or disregard additional earnings entirely.

This is why understanding different lenders’ criteria and being able to find a lender that is comfortable with your unique income structure can be a vital step in securing a mortgage that meets your needs.

How Are Bonuses and Commission Calculated for a Mortgage?

A large bonus paycheque might feel and look great on paper, but lenders are generally more interested with just how frequently these bonus payments happen.

Rather than focusing on a single payment or month, lenders will calculate any bonus or commission income by using an average of earnings over a select period. This is one of the key factors to how lenders assess bonus income for a mortgage.

While the exact time period required can change depending on your chosen lender, this approach generally helps lenders assess whether the income is sustainable and whether or not it can be relied upon to support future mortgage payments.

For example, let’s imagine two applicants each earn a total income of £50,000 in a single year:

• Applicant One: is on a £40,000 salary and receives an additional £10,000 annual bonus every year as part of their employment package
• Applicant Two: is also on a £40,000 salary and due to a fantastic year in business, receives a one-off £10,000 bonus for an exceptional performance.

Despite both applicants earning the same total income of £50,000, lenders may assess these income profiles very differently when it comes to calculating their total affordability.

This is because one-off payments are often treated as an anomaly rather than a reliable source of additional income. When assessing affordability, lenders are generally more interested in consistency than the size of a single bonus or commission payment.

Ultimately, mortgage affordability calculations are designed to create a realistic picture of your total earnings. As such, lenders will want to ensure that any additional income earned through bonuses or commission will most likely continue after the mortgage has been approved.

What Evidence Do You Need to Prove Bonus and Commission Income?

Whether your income comes from bonuses, commission, or a combination of both, for a lender to include additional earnings within an affordability assessment, they will need to see evidence that the earnings form a regular part of your total income.

While each lender will have their own specific requirements, the following documents are among the most commonly requested forms of evidence when applying for a mortgage using additional income.

• Three to six months of payslips showing bonus or commission payments
• Latest P60 tax summary
• Employment contract
• Employer reference or income confirmation letter
• Bonus confirmation statements
• Bank statements showing salary credits

Providing the required evidence for variable income mortgage applications early in the process is the best way to demonstrate to lenders the complete picture of your earnings, and can help reduce the likelihood of delays later in the application.

How Do Lenders Average Variable Income Over Time?

Let’s look at an example in practice:

let’s imagine an employee receives annual bonuses of £4,000, £6,000, and £8,000 over a three-year period.

Using a simple average, a lender would calculate that the total bonus income is likely to be equal to £6,000 per year. This £6,000 average then provides a starting point for the lender’s wider calculations.

It’s important to understand that the exact amount included within affordability calculations will always depend on your chosen lender’s criteria.

As we’ve touched on before, each lender will have their own criteria in regard to how they approach additional income. While some lenders may be willing to use 100% of averaged bonus income, others may apply restrictions and only include a proportion of those earnings when assessing affordability.

In addition to this, when averaging bonus income for mortgage applications and reviewing variable income history for mortgage approval, lenders do not all require the same track record of earnings before considering additional income.

Some lenders may require 12 months of bonus or commission earnings before considering the income, while others may be comfortable assessing a shorter track record of three to six months.

The final percentage and figure a lender ultimately uses can have a direct impact on your borrowing power, particularly where bonuses or commission form a significant proportion of your overall income.

How Can You Maximise Your Borrowing Power?

Maximising your borrowing power does not come down to earning more money. When bonuses and commission form part of your income, understanding how lenders assess those earnings can make a significant difference to the amount you are able to borrow.

One of the most effective ways of increasing mortgage borrowing with bonus income and maximising mortgage affordability with commission earnings is to ensure that any additional income can be fully evidenced and supported by a clear track record of payments. In the case of missing payslips, incomplete records, or gaps in income history, lenders are much more likely to exclude any additional income from the affordability calculations.

In addition to providing a supported track record of additional income, other ways of improving borrowing power may include:

• Keeping employment stable before applying
• Reducing existing credit commitments where possible
• Maintaining a strong credit profile
• Organising income evidence well in advance
• Reviewing lender criteria before submitting an application

It goes without saying that careful preparation and good financial management in the lead up to a mortgage application can make a meaningful difference to the outcome. Even small improvements can sometimes have a noticeable impact on affordability.

Beyond this list, and perhaps the most important factor that is often overlooked when improving borrowing power with variable income, is actually lender selection.

In many cases, finding a lender whose criteria align with your income profile and employment circumstances can make a significant difference to both affordability and borrowing potential. This is particularly true where bonuses or commission form a substantial proportion of your overall income, as choosing the right lender can often be just as important as the income itself.

At Boon Brokers, our dedicated mortgage advisers can help compare and find lenders that match your specific needs. We can filter through lenders based on how they assess variable income, restrictions, and find a lender who could maximise your potential borrowing power.

How Can a Mortgage Broker Support You?

Knowing that your basic salary may only tell part of the story is one thing, but understanding how bonus and commission income is assessed and incorporated into affordability calculations is often far less straightforward.

This is where having a dedicated mortgage broker can put you on the right path.

At Boon Brokers, we help borrowers navigate these challenges every day. As a fee-free, whole-of-market mortgage broker, we compare lenders from across the wider market to identify mortgage options that best suit your income profile and borrowing goals.

Our experienced advisers understand how different lenders assess bonus and commission income and can help identify lenders whose criteria may allow a greater proportion of your additional earnings to be considered.

Beyond finding the right lender, we also help prepare and present your application, ensuring that supporting documents are packaged correctly and submitted efficiently. From your initial enquiry through to mortgage offer, we liaise directly with lenders on your behalf, helping make the process as straightforward as possible.

If bonus or commission forms part of your income, contact Boon Brokers and find the right lender who could help maximise your borrowing potential today.

Want to learn more about proving your income for a mortgage?

Read our complete guide on What Proof of Income is Needed for a Mortgage to learn more about the documents lenders require and how to prepare for the mortgage application process.