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

If your basic salary only tells part of the story, additional earnings from bonuses and commission could strengthen your mortgage application and increase the total amount you are able to borrow.

However, lenders do not all assess additional income in the same way. To maximise your borrowing potential, it is important to understand how different lenders assess additional income and what evidence you need to provide.

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

What Types of Variable Income Do Lenders Accept?

Variable income can come from a range of sources, including bonuses, commission, overtime, shift allowances, dividends and second job income.

Many mortgage lenders will consider these earnings, provided they are supported by sufficient evidence and have been received consistently. However, the types of variable income accepted and how it is assessed will vary depending on the lender’s criteria.

The table below compares some of the most common types of variable income and how lenders typically assess them when applying for a mortgage with bonus income or a mortgage with commission income.

Mortgage lender criteria can change on a daily basis. You should speak with Boon Brokers for the most up-to-date information.

A key point to note is that the amount of variable income included within affordability assessments can vary significantly between lenders.

Some lenders may include a large proportion up to 100% of bonus or commission income in affordability assessments, while others may apply stricter limits or disregard certain types of additional earnings altogether.

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?

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.

A large bonus paycheck might feel and look great on paper, but lenders are generally more interested with just how frequently these bonus payments happen. This is the key to how lenders assess bonus income for a mortgage.

For example, let’s look at two applicants each earning a total income of £50,000 in a single year.

• Applicant One: The first applicant is on a £40,000 salary and receives an additional £10,000 annual bonus every year as part of their employment package.
• Applicant Two: The second applicant 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 could 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 reflect your sustainable level of income. As such, lenders will look for evidence that any bonus or commission income forms a regular part of your overall earnings.

What Income Evidence is Required?

Whether your additional income comes from bonuses, commission, or a combination of both, lenders will want to see a clear track record of regular payments when proving bonus income for mortgage applications.

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
• Employment contract
• Employer reference or income confirmation letter
• Bonus confirmation statements
• Bank statements showing salary credits

Documents such as payslips, P60s, employer references, and bonus statements can all help underwriters assess how reliable the income is and how much of it can be used when calculating affordability.

Providing the required evidence early in your mortgage application is the best way to help lenders accurately assess your variable income and reduce the likelihood of delays later in the process.

How Do Lenders Average Variable Income?

Variable income, such as bonuses and commission, will not automatically be included within an applicant’s affordability calculations. Instead, lenders will review a history of additional earnings to establish a consistent track record before calculating an average income figure.

For example, let’s look at an employee who received annual bonuses of £7,000 in their latest year and £5,000 in the previous year.

Using a simple average over the last couple of years, a lender would calculate that the bonus income 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.

Ultimately, the final percentage the lender uses can have a direct impact on your borrowing power, particularly where bonuses or commission make up a significant proportion of your overall income.

How Can Income from Bonuses and Commission Maximise Your Mortgage?

Maximising your borrowing power does not always come down to earning more money. When bonuses and commission form part of your income, choosing a lender that will include more of your additional earnings within its affordability assessment could significantly increase the amount you could borrow.

Because lenders assess bonus and commission income differently, finding one whose criteria align with your income profile and employment circumstances is crucial. This is particularly true where variable income makes up a substantial proportion of your overall earnings.

In addition to finding a lender that recognises 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

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.

How Can a Mortgage Broker Help?

When bonus and commission form part of your income, finding the right mortgage lender can be more challenging because affordability criteria vary considerably.

A mortgage broker understands how different lenders assess variable income and can recommend those whose criteria best suit your employment and earnings profile.

At Boon Brokers, we help borrowers with 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.

Beyond finding the right lender, we can also help prepare and present your application, ensuring that supporting documents are packaged correctly and submitted efficiently.

If you’d like to learn more about proving your income for a mortgage, read our guide on what proof of income is needed for a mortgage, which explains the documents lenders require and how to prepare for the mortgage application process.