Bonus, Commission And Overtime: Which Parts Of Your Pay May Count?

A payslip does not always tell the whole story. Someone may have a fixed salary but regularly earn more through overtime, commission or bonuses. When they apply for a mortgage, the question is whether the lender will include that extra income and, if so, how much.

Variable pay can count towards affordability, but it is not always treated like basic salary. The lender may consider how often it is paid, the history available and whether the recent level is likely to continue.

Basic Pay And Variable Pay Are Usually Separated

Basic salary is normally the clearest part of employed income because it is set out in a contract and paid at a predictable level.

Bonus, commission and overtime are less straightforward because the amount can change. A bonus might be guaranteed or discretionary. Commission may arrive monthly but rise and fall with sales. Overtime could be a regular part of somebody’s role or only available during busy periods.

A lender may use all, part or none of a particular income stream, depending on its criteria and the evidence available.

Regularity Can Matter As Much As The Amount

A lender is trying to form a reasonable view of the income likely to continue while the mortgage is repaid. One unusually strong month may not be enough if earlier months were lower or the payment was a one-off.

It may consider:

how frequently the extra income is paid
how long the applicant has received it
whether the amount is stable, rising or falling
whether it is guaranteed or discretionary
whether year-to-date earnings support the figure

Current NatWest intermediary criteria illustrate how treatment can vary. Regular monthly bonus may be considered at 100% with three consecutive payslips and supporting year-to-date income. Annual or twice-yearly discretionary bonus is capped at 50% and normally assessed using evidence from the previous two years [1].

This is one lender’s approach, not a market-wide rule. Other lenders may use different percentages, evidence periods or calculations.

Why One Strong Payslip May Not Be Enough

Imagine an applicant receives £1,200 of overtime in August after covering colleagues’ holidays, but usually earns £300 a month. It would be risky to assume a lender will multiply the August figure by 12.

The lender might average several payslips, compare them with year-to-date earnings or request a longer history. Months with no variable pay may also form part of the calculation. Halifax’s current guidance, for example, asks for monthly overtime, bonus and commission from three consecutive payslips, including a zero where nothing was received [2].

For an annual bonus, a lender may ask for evidence of more than one payment to see whether the latest figure is typical. If the most recent amount is lower, it may take the more cautious figure.

The Type Of Payment Matters

A guaranteed contractual bonus may be viewed differently from a discretionary bonus. Established monthly commission may be easier to demonstrate than commission received for the first time last month. Regular overtime may also be treated differently from extra hours offered for a temporary project.

Shift allowances, standby payments and other additions can have their own criteria. The lender may need to understand what a payment represents and whether it is expected to continue.

What Evidence Might Be Requested?

Depending on the lender and payment pattern, the applicant could be asked for recent payslips, a P60, year-to-date earnings, bank statements or an employment contract. An unusual increase, fall or gap may also need to be explained.

It is better to provide a complete picture than only the strongest months. If variable pay is needed to reach the required borrowing amount, speak to a broker before making an offer or committing to a remortgage. They can review the income pattern, check how suitable lenders may assess it and calculate a more realistic borrowing figure.

Bonus, commission and overtime can make a meaningful difference to affordability, but the total earned is only part of the picture. Consistency, history and the type of payment all matter. Checking this at the start can help avoid relying on income that a lender may not use in the way expected.

Your home may be repossessed if you do not keep up repayments on your mortgage.