Would you lend £370,000 to a pilot earning £46,800?
Unconventional income streams are not a barrier to getting the mortgage you want - if you know where to look.
Mainstream lending these days is all about rapid, automated, low-cost processing. If you are in the majority, having a PAYE job and regular salary, this is a real benefit. Almost all lenders will give you a quick decision and a mortgage based simply on your income. But what if your income is not so simple? In particular, what if, despite a history of a reliable total each year, the amount you are “guaranteed” from any one source, is a minor part of your overall income?
Not just the self-employed
This applies to a huge minority. In addition to the 4.8 million self-employed (a record 15% of those in work), it includes those in sales who receive high commission payments, merchant bankers whose bonuses often exceed their salary, many in the media who pursue other projects alongside their ‘day job’, owner-directors whose income is a mixture of, say, salary, dividends and loan repayments, and more. Their earnings can be remarkably high, year-in year-out yet, because their income streams don’t fit the mass-market systems, the amount they can borrow via conventional routes, is relatively small. Our pilot, for example, would have been limited to around £200,000.
A shock for self-certified borrowers
A specific shock awaits those with non-standard incomes and a self-certified mortgage reaching the end of its fixed rate: the policy of their lender has changed and they are no longer eligible for a replacement fixed-rate deal. Their options are to suffer a higher variable rate - or find a more enlightened lender.
Good rates for niche good earners
Happily, more enlightened lenders are out there, often catering for a specific niche. Some specialise in particular professions or sectors (e.g. doctors and banking respectively), whilst others focus on historic earnings - and the likelihood that history will repeat itself. Airline pilots are a good example here. A basic salary of around £50,000 is quite typical, but so is having six or seven elements to each payslip. This includes overtime and different allowances for different locations. Because these almost always at least double the basic pay, we were able to find several lenders content to take all of our client’s income into account. Now needing a loan of 3.7 times earnings, we were able to secure the excellent rate of 1.89%, fixed for two years.
Twenty-six times basic salary
Even for us, this mortgage was unusual. Our sales-sector client had earned £190,000 in the previous full year and similar amounts in the previous two. However, with a basic salary of just £25,000 and no new deals for some time, the most he had been offered prior to coming to us, was £270,000, based on payslips from the last three months. In contrast, we found a lender willing to take into account 100% of his commission over the previous two years, securing a loan of £650,000 - and the purchase of our client’s dream house at an exceptionally attractive price.
The broader message here is very much about you, the borrower. No one should take on a loan they cannot service, or might not be able to. But the preference of the big lenders for easy-processing can be highly frustrating for those who feel that it unreasonably shuts them, especially at a time of record low interest rates. Fortunately, some lenders will listen so, if you have a good case for going well beyond conventional parameters, the mortgage you want is probably obtainable.