Complex Income Mortgage
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Complex Income Mortgage
Aaron Tyson explains how complex income is assessed during the mortgage application process.
What is considered complex income on mortgage applications in the UK?
The most common thing we tend to see are bonuses, commission and overtime. Bonuses could be annual, biannual or quarterly, while commission could be monthly or quarterly. Overtime is another form of income where the majority of lenders have criteria around what they will accept.
Some will take 100% of the average income from these, which may be over three months, six months or a year. Others will just use a percentage towards affordability.
Complex income could also come via different streams, multiple jobs, Buy to Let portfolios and investment income. There are also jobs that have more complex income, such as those involving fixed-term contracts, day rate contracts and the Construction Industry Scheme (CIS).
Even more complex income sources include vested shares or restricted sale units (RSUs). The big tech giants often pay their employees a little bit less in basic income, but more in shares. Generally, employees are quite happy with that and some lenders will include it in their calculations.
How do lenders assess different complex incomes and how do they impact the mortgage assessment process?
It’s still all about the income itself and the frequency. You might have commission or overtime, and want to use as much of that as possible for affordability purposes.
We would look back over the last year to make sure that we’ve got the correct average. Every bank and building society has different criteria, where they will or won’t accept certain things. It’s not flexible.
It’s crucial to understand which bank will accept 100% of overtime over a certain period versus 60% of it. Perhaps one accepts 40% of a bonus, but none if there was no bonus in the most recent year.
It’s all down to leveraging that criteria, which we have to know to advise clients. Our advice has to reflect the client’s financial position. If we need to reach maximum borrowing, we focus on the lenders that will generate the best affordability outcome.
What documentation and evidence do I need to provide to prove my complex income?
If it’s earned income and you’re a PAYE employee, it’s your payslips. That’s the most common form of income documentation.
If you’re self-employed, we need your tax self-assessment – your SA302s. Complex income for the self-employed all gets wrapped up into the annual figure anyway. Tax returns would also show investment income.
Occasionally we can use bank statements for maintenance payments, or any contractual obligation to receive a set income for a specific period, such as a divorce settlement.
What challenges might arise during the mortgage application process when declaring complex income?
Complex income will be varied by nature. We’d expect to see it go up and down. It’s not like a basic income that stays the same all year.
We quite often see a dip in overtime or commission at a time when we want to make a change – maybe to move house or change the mortgage amount. That would trigger a new assessment of the case, with new payslips required. Those new payslips may bring the average income down, impacting the affordability and maximum lending.
That’s a common challenge we see. But complex income is always going to be varied. We just need to ensure there’s enough flexibility with the lender we use. Understanding which lenders will give us the broadest scope on affordability is one of our key areas of focus.
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How do I improve my chances of getting approved for a mortgage with complex income?
The lending should be based on a snapshot of your usual position. If you’re working a lot of overtime or generating a lot of commission generally, make sure that’s maintained into the future to avoid any challenges around your income in the long-term.
Credit scoring is the same. It’s not going to change because it’s a complex income mortgage. The lending is always based on a snapshot of the income and credit report. Just make sure it’s going to stay buoyant throughout. If there’s any unexpected dip for whatever reason, let us know.
Are there any mortgage lenders that specialise in mortgages for customers with complex income?
Some banks are naturally more accepting of different streams of income than others. Maybe you have one job with overtime plus a second job, for example. Some lenders will accept that, others won’t.
Where more income streams are accepted, lenders may charge slightly higher rates, because the risk profile for the bank is a bit broader and they’re more open to that type of lending.
RSUs or vested shares involve quite niche criteria. One lender might be very good with that, but not so good with multiple jobs or fixed-term contracting, for example. It really depends on the client’s specific position – we leverage our knowledge on their behalf. There’s no one size fits all.
How can I calculate my borrowing capacity when I have a complex income? Does it differ from regular income?
It depends on the client, the income and the regularity. It’s difficult to do this accurately without in-depth knowledge of lender criteria – which of course is where we come in.
Mortgage lending tends to be based on around 4.5 to 5.5 times your combined gross income – occasionally up to six times. We take that combined gross income for the household, and you can potentially borrow 5.5 times that figure, including the complex income when it’s averaged out for the year.
If you’re not sure how to work that out, we can do it for you. It takes just a few minutes. We’ll be able to tell you exactly how your income can best be utilised and what that means for affordability. Any additional income will always be positive for your mortgage prospects.
What else do we need to know about complex income mortgages?
There’s nothing out of the ordinary for us with income. There’s nothing that would make us feel anxious or unsure. Complex income is very commonly accepted by large proportions of the market.
It’s my job to get you the best affordability outcome we can. So just have a conversation – it doesn’t have to be with us. It could be with whoever you choose as your advisor. But we can work out quickly what the borrowing capacity would be with your complex income.
Don’t let it put you off making a decision. If you’re expecting to have a larger income coming through soon, that’s fine. Tell us what that income is likely to be and we can budget for that as we move forward. Don’t wait – just get the relevant advice.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.