We are coming into bonus season for professions such as investment bankers and law firm partners. Often whilst the basic salary is paid in sterling the bonus payment may be made in dollars or another foreign currency.
The amount of bonus received can form a substantial part of the total remuneration and therefore we have investigated how lenders consider this income and how easily available mortgages are if part of the remuneration is paid in a foreign currency.
Initially, we need to look at how lenders consider an annual bonus. Most lenders will consider this when assessing affordability for a mortgage. If the bonus is paid annually, lenders generally like to see some track record and may want to look at the bonus received over the last two years.
The mortgage lender would take an average of the last 2 years’ bonus payments however if the bonus paid in the most recent year is lower than the previous year, they will use the lower figure. Depending on the lender they will use somewhere between 50% to 100% of this bonus income towards affordability.
Which lenders use foreign income for mortgages?
The are a limited number of lenders who can use foreign currency income towards affordability.
Lenders need to put measures in place to make sure they are lending responsibly when assessing a mortgage based on foreign currency income. This could include for example making sure there is room in affordability for fluctuations in currency exchange rates.
Lenders typically perform a ‘haircut’ on the income received in foreign currency. This means they may only take 75-90% of the income into account when assessing affordability. The size of the haircut depends on the lender’s individual lending criteria and which currency the income is paid in. Some currencies are more stable than others so wouldn’t need so much held back for fluctuations.
The benefits of using a mortgage broker for bonuses paid in a foreign income.
Fox Davidson has access to high street lenders who can look at annual bonuses paid via a foreign currency such as US Dollars or Euros.
We can secure funding for loans on a bespoke basis with our large loan mortgage lenders, funding is typically available up to £10 million.
In addition, we have access to Private banks that can look at larger loans with no upward limit. The private banks we work with are especially good at dealing with often complex incomes and may utilise carry and vested share income and RSU’s for affordability. The private bank mortgage transactions tend to be more complex in nature and the private banks are sometimes better equipped to deal with bespoke funding requirements.
Should you include bonus in salary for a mortgage?
Yes, you should income bonus income for mortgage lending purposes. All lenders will accept all or some of your bonus income when calculating affordability.
The amount of a bonus lenders will use depends on the frequency of the bonus, how much it is relative to the basic salary and your track record of receiving a bonus.
What foreign currencies are acceptable for UK mortgage purposes?
Mortgage lenders will accept bonuses paid in many of the world’s major currencies. These include (but are not limited to):
- Chinese Yuan – CNY
- Euro – EUR
- US Dollars – USD
- Japanese Yen – YEN
- Swiss Francs – CHF
- Canadian Dollar – CAD
- UAE Dirham – AED
Can I get a UK mortgage if I am paid in dollars?
Yes, mortgage lenders in the UK will lend to customers paid in US dollars. The lenders include high street banks, building societies and private banks.
How are bonuses treated for mortgages?
Mortgage lenders will average bonus income over one or more years and will use up to 100% of the bonus income in their affordability calculations.
To discuss your mortgage requirements please do get in touch