While the UK economy is steadily recovering, and battling the problems surrounding Brexit, we have seen a significant increase in demand for bonus income mortgages. These relate to individuals working in sectors where basic pay is relatively low but there is the potential for significant bonuses. If the mortgage affordability calculation is carried out on basic pay then many would never be able to afford their dream home. So, if you’re looking for a bonus income mortgage, what are your options?
High street banks
Despite the fact that many high street banks have reined in their risk/reward ratio in light of the 2008 worldwide economic downturn and Brexit, many are still active in the bonus income mortgage market. There is also the opportunity to approach private banks/niche lenders who are funded in a different manner and have more flexibility when it comes to the consideration of bonus payments. It is safe to say that the first port of call for many people is the high street banks but there is significant competition in this area.
Private banks and niche lenders have been coming to the fore of late with regards to high net worth individuals and applications for bonus income mortgages. While it is slightly unfair to suggest that high street banks are not competitive, sometimes the criteria they use can be a little restrictive. For example, many high street banks will only count 50% of regular bonus payments towards the affordability calculation. In certain circumstances, private banks and niche lenders will focus more on the potential for the individual and realise up to 100% of bonus payments when calculating affordability.
Performance related bonuses
The financial services sector is head and shoulders above any other area of the UK economy when it comes to bonuses. In the financial year ended 2017 payments for the sector totalled just over £1.25 billion. The nearest rival to the financial services sector totalled just over £500 million in bonus payments for the same year. So, it is not difficult to deduce that the vast majority of high net worth individuals looking towards bonus income mortgages emanate from the financial services sector.
Recent years have also shown stronger growth in bonus payments compared to basic salary. When you bear in mind the challenges facing the UK economy in the short to medium term perhaps it is understandable performance related bonuses are becoming the norm.
Looking at the wider mortgage market
While many people prefer to approach high street banks for their mortgage finance requirements, there is a whole host of opportunities behind-the-scenes. Many of these are only available to mortgage brokers who have built up long and trusting relationships with private banks and niche lenders. While there will obviously be a charge when hiring a mortgage broker, the chances are they will more than pay for themselves with a mortgage deal that is structured around your unique situation.
It is strange to think that in this era of transparency and the online revolution, there is still a mortgage market behind a mortgage market if you like. Private banks and niche lenders tend to operate in different circles to the high street banks. Accessed via the mortgage brokers they offer some very interesting deal structures.