We are pleased to see the return of flexibility to mortgages after years of rigid processes after the financial crash.
Since April last year, lenders have been dealing with the fallout from the biggest piece of mortgage regulation ever introduced in this country.
It means lenders now must check every borrowers’ income and make more intrusive checks about their spending patterns.
This can mean asking borrowers how many newspapers they buy, how much they spend on Christmas presents or the cost of their regular haircut.
It is all designed to ensure borrowers can afford the repayments they are making over the next thirty years. It is the biggest monthly layout most people will make and it makes sense to have rules in place that makes sure it will be paid.
We agree with most people in the industry that lending standards had slipped in the decade before 2008 and needed to be corrected.
However, as often is the case with new rules the pendulum had swung too far and crucial niche mortgages were washed away in the tidal wave.
Lenders were desperate to play by the rules and be safe so they scrapped interest-only mortgages and made it harder for anyone self-employed or with bonus income to get a deal.
This is where a good adviser can now be worth their weight in gold by scouring a more complex market to get the best deal for those with unusual income payments.
Bonuses
Bonus income mortgages are mortgages in which a bonus income contributes towards mortgage payments.
Different lenders have a variety of policies relating to how they categorise bonuses: discretionary, performance related or contractual.
Bonus income mortgages are niche mortgages, varying between lenders, mortgage type, industry in which the applicant works, and previous bonus history at the current employer.
Because of new rules checking income payments of borrowers some lenders have become so strict as to reject any income with bonus payments.
This would cut the amount many can borrower dramatically, particularly for those in businesses such as financial services or recruitment which rely heavily on bonuses.
The lender theory is that it is unreliable and open to changes so it cannot be used to assess affordability over fixed mortgage payments over 30 years.
This is wrong as bonus or commission payments form essential and regular forms of income for many.
We know that income is not a fixed amount for many and this needs to be reflected in how much they can borrow whether it is on an interest-only deal or other.
Lenders that do offer bonus income mortgages may require details of all the relevant information of your employment history, length of time at current employer and bonus procedures at the company, as well as your property details.
It can be a complex process and many borrowers can fall at the first hurdle without proper advice and assistance from professionals.
The good news is that lenders are starting to loosen criteria and offer more specialist deals so the market is opening up.
If you have a bonus then do not discount it from your income but it may need a more nuanced approach that a mortgage adviser can best deliver.
