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Variable income

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 16. February 2023

Looking to speak to mortgage brokers about variable income as Virgin Money and Clydesdale Bank have upped their variable income limit to 75 per cent. 

  1. How much will this benefit borrowers?
  2. What is the typical amount of variable income that lenders accept? 
  3. Do you think more lenders will increase this amount? 
  4. What are the advantages and disadvantages of variable income? 
  5. What would your advice be to someone who has a lot of variable income?

6 responses from the Newspage community

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Jonathan Burridge0
Founding Adviser at We Are Money
Customers whose income is based upon commission or bonuses have struggled to have their full earnings accepted for years. Fortunately, NatWest have long accepted 100% of averaged regular income and it is good to see other lenders starting to treat this income more appropriately. However, there is a long way to go and such borrowers are still being held back, like many self-employed individuals, by out-dated and ultra-conservative thinking.
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Samuel Ewen0
Managing Director at Rosehill Financial Services
Some lenders can consider up to 100% of variable income, such as commission, bonuses and overtime, so I wouldn’t say that accepting 75% is particularly game-changing. With variable income, it’s also key to note that we have the finer details to consider. Some require a track record over a specified period, others might cap the variable income at the most recent P60 figure, year-to-date figure or even at the level of basic guaranteed income. We find that many clients are surprised by the limitations this can present, particularly in roles where variable pay equates to a large portion of their earnings. When advising clients, it’s also crucial to discuss the importance of having an emergency fund to cover the mortgage payments and other committed costs if earnings are lower in certain months.
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Justin MoyVerified
Managing Director at EHF Mortgages
Variable income is a feature for most sales personnel or those with plenty of overtime available, this will be a welcome source of additional income for the household. Assuming this is consistent, then it's great that more lenders will look more favourably at this important stream of income. Most lenders will take around 50-65% of any variable income, and one or two specialist lenders will take 100% if there is a track record. What borrowers (and lenders) will need to consider is whether that extra income is sustainable, and not just used to stage higher income for a mortgage application. 60-hour weeks can be sustained for a short period but not throughout the year, and using that income can be difficult. Anyone with different streams of income definitely needs to speak to an experienced mortgage broker who can assess which lenders to use
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Austyn JohnsonVerified
Founder at Mortgages For Actors
Variable income is our daily bread and butter. We have about 90% of cases with variable income. Any help from lenders towards this policy will always help and mean the more understanding specialist lenders will need to lower their rates when high street lenders start to sharpen their teeth in this area. Lenders will typically allow a little variable, but not a lot and some do not even seem to understand self-employment. It would be ideal if employed and self-employed people could be treated the same with any LTV. Self-employed is more stable for the long term, after all. If you are fired from your employment, your income ceases. For the self-employed, not so much. My advice would be to keep a business bank account just for the business, so it's simpler for lenders to see income and outgoings.
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Scott Taylor-Barr0
Principal Adviser at Barnsdale Financial Management
How lenders use variable income, like self-employed income, varies massively from lender to lender; some use none, whereas others may use 100%. The average is around 50% with the middle ground of lenders, so anyone accepting more than that is going to stand out to brokers; especially given the rise in remuneration packages that now feature elements of variable pay or performance-related pay, be that overtime, commission, or bonus. If your pay features variable income then making sure you are talking to the right lender will make a world of difference to the level of mortgage you can achieve, so speaking to a mortgage broker is key.
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Dean EsnardVerified
Director at Magni Finance
The amount of variable income taken into account ranges from 50%-100%. Borrowers who can demonstrate a longer track record, normally three years, have a greater chance of having 75%-100% of this income factored in. This is great for borrowers whose commission and bonus income makes up a large portion of their income. However, there is of course a risk that this income could cease especially with so many companies facing financial difficulties currently. Also, if this income is received less frequently than monthly, borrowers need to ensure they can afford the monthly payments on their basic salary alone, something which lenders are mindful of, too.