Looking deeper into income: Lender’s perceptions.
Some employees’ incomes get made up of various elements. There is virtually always a basic income on a payslip. However, there can also be other items such as overtime, bonuses, and shift allowances.
Not necessarily all of these additional strands are guaranteed so as we learn in this case study, and lenders look at this in various ways.
Income elements can branch into complex issues.
Frankie, a First Time Buyer in Hull, was working for the NHS, and his payslips were incredibly complex. In addition to his basic income, he got paid different hourly rates for the various shifts he was working.
There was overtime too at the time and a half and holiday pay; in fact, one payslip had six different elements of payment on it!
His bank would not lend him and his family enough to buy the home they had made an offer on, and he approached a Mortgage Broker in Hull for a second opinion.
Lenders seek justification as much as the client.
An explanation as to why the lenders can have an issue with multiple elements of pay on payslips. Is that these extra strands are rarely guaranteed.
Therefore, in the event of a repossession taking place. They might struggle to justify to a Regulator why they granted the mortgage in the first place based on income. Which they knew was variable.
As a result, lenders often take an arbitrary view; for example, they might take 60% of overtime if it’s on every payslip. Others take bonus into account if it’s payable monthly or paid annually, things can get very complicated!
A different approach can mean a different perception
Our group of Mortgage Advisors in Hull managed to help Frankie; in fact, we discovered two lenders who would lend him the amount he and his family needed.
Lender one had a policy of taking 100% of the shift allowance and overtime into account. As long as it might get evidenced on every payslip.
They applied an average of the last six months’ payslips to give them confidence. That the income got smoothed out and sustainable.
Lender two would also lend more than enough but evaluated the income differently. Instead of considering all the various elements individually.
They asked that we provide Frankie’s last two years’ P60’s and took an average of those.
This technique also works well for employed applicants. Who works in sales roles with low basic salary but high commission and bonus.
A sustainable customer is a happy customer.
Frankie was delighted he contacted us for our Mortgage Advice in Hull. He knew the mortgage was easily affordable, and he knew that his income was sustainable. It was just a case of finding a lender who took a different approach.
Whatever your situation, whether you are Moving Home in Hull, buying as a First Time Buyer, or looking to Remortgage. If your income gets made up from several different sources.
We would recommend you make contact with us well in advance of making an offer. So you can be sure of your maximum borrowing capacity upfront to avoid potential disappointment.
Date Last Edited: 10/09/2023
