Some employees’ incomes are made up of various different elements. There is almost always a basic income on a payslip but there can also be other items such as overtime, bonuses and shift allowances.
Not all of these additional strands are guaranteed so as we discover in this case study, Lenders view this in different ways.
Josh, a First-Time Buyer in Birmingham, worked for the NHS, and his payslips were incredibly complicated. In addition to his basic income, he was paid different hourly rates for the various shifts he worked.
There was overtime too at 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 us for a second opinion.
The reason Lenders can have an issue with multiple elements of pay on payslips is that these additional 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!
We managed to help Josh; in fact, we found 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 could be evidenced on every payslip.
They applied an average of the last six months’ payslips to give them confidence that the income was smoothed out and sustainable.
Lender two would also lend more than enough but assessed the income differently. Instead of evaluating all the various elements individually, they simply asked that we provide Josh’s last two years’ P60’s and took an average of those.
This method also works well for employed applicants who work in sales roles with low basic salary but high commission and bonus.
Josh was delighted he contacted us for our mortgage advice, 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 Birmingham, buying for the first time, or looking to Remortgage. If your income is made up from several different sources, I 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.