Complex Income Mortgages Explained

Main guide

What is a complex income mortgage?

A complex income mortgage is not usually a separate mortgage product. It is a mortgage application where the income is less straightforward than a single permanent salary.

Complex income can include bonus, commission, overtime, shift allowance, second jobs, self-employed income, company director income, dividends, retained profits, contract income, freelance income, agency work, foreign income or income from more than one source.

The main issue is how much of that income a lender is willing to use for affordability. Lenders need to see that the income is real, evidenced and likely to continue. If the income is variable or irregular, they may use an average, a percentage or a lower figure.

Why complex income needs the right lender

Different lenders can reach different conclusions from the same income documents. One lender may use 100% of a regular bonus. Another may use 50%. Another may only use basic salary if the bonus is not guaranteed or has limited history.

For example, someone earning a basic salary plus commission may be able to borrow more with a lender that accepts a strong commission track record. A company director may need a lender that considers profit as well as salary and dividends. A contractor may need a lender that understands day-rate income.

This is why lender choice can be important. The right lender is not always the one with the lowest advertised rate. The application still needs to fit the lender’s affordability and criteria.

The amount someone can borrow depends on income, outgoings, deposit, credit history, property type and lender criteria. Mortgage approval is not guaranteed.

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

What income types can make a mortgage application complex?

A mortgage application can become more complex when income is variable, irregular, recent, from multiple sources or not shown clearly on standard payslips.

Lenders may need to assess:

• bonus income
• commission
• overtime or shift allowance
• second jobs
• self-employed income
• company director salary and dividends
• retained profits
• contractor day rate
• freelance or project income
• CIS income
• agency income
• foreign income
• maintenance or benefit income
• investment or rental income

The documents needed depend on the income type. An employed applicant with bonus income may need payslips and P60s. A company director may need accounts, tax calculations and dividend evidence. A contractor may need contracts and bank statements. A freelancer may need tax documents, invoices or accounts.

History can matter. Lenders may want to see that the income has been received consistently. If income is new, irregular or recently increased, the lender may use a lower figure or ask for more evidence.

Some income may be accepted by one lender but not another. For example, a lender may accept regular overtime but not occasional overtime. Another may accept annual bonus but only if it has been paid for two years. These differences can affect how much someone can borrow.

It is important to check lender criteria before applying, especially where more than one income type is being used.

Bonus, commission and overtime

Bonus, commission and overtime can support a mortgage application, but lenders do not all use them in the same way. Some may use a percentage of the income. Others may average the last two years, use the latest year or require evidence that the income is regular.

If bonus or commission has increased sharply, the lender may ask whether it is sustainable. If it has reduced, the lender may use a lower amount. A one-off bonus may not carry the same weight as a regular annual or monthly bonus.

Overtime and shift allowance can also vary. Regular overtime may be more acceptable than occasional overtime, but the lender will decide how much can be used.

Self-employed and company director income

Self-employed applicants and company directors often have income that needs closer review. A sole trader may be assessed on net profit. A partner may be assessed on their share of partnership profit. A company director may be assessed on salary and dividends, or in some cases company profit or retained profit.

This can make a significant difference to borrowing. If a director leaves profit in the business, a lender using only salary and dividends may offer a lower amount than a lender that can consider wider company figures.

Lenders may ask for tax calculations, tax year overviews, accounts, accountant details, bank statements and dividend evidence.

Contract, freelance and agency income

Contractors, freelancers and agency workers may have strong income, but it can be presented differently from standard employment. Lenders may review contracts, day rates, payslips, invoices, bank statements or tax documents.

Some lenders are comfortable with short-term contracts if there is a strong history in the same field. Others may want longer contract history, fewer gaps or evidence of renewal.

For agency income, lenders may want to see consistency and may average income over a set period. Irregular hours or changing assignments can affect the calculation.

Multiple income sources

Some applicants use more than one income source. This could include a main job, second job, freelance work, rental income or investment income. Lenders may not use every income source automatically.

They may ask how long the second income has been received, whether it is sustainable and whether the applicant can realistically continue both roles. If the workload appears unrealistic or the income is new, the lender may take a cautious view.

Common mistakes to avoid

A common mistake is assuming that all income shown on a bank statement can be used for mortgage affordability. Lenders need to understand what the income is, where it comes from and whether it meets criteria.

Another mistake is applying to a lender before checking how they treat your income type. This can lead to a lower borrowing figure or a declined application.

It is also important not to overstate income at Decision in Principle stage. If documents do not support the figure used, the full application may not proceed as expected.