Mortgage with Commission or Bonus Income

If a significant portion of your earnings comes from commission, bonuses, or other variable pay, you already know your income is not straightforward. The good news is that most lenders will consider this income — but how much they count varies enormously.

How Lenders View Variable Income

Lenders split your income into two buckets: guaranteed (your basic salary) and variable (commission, bonuses, overtime, shift allowances). Your basic salary is counted in full. The variable portion gets more scrutiny because it could theoretically drop to zero.

The key question for lenders is: how regular and predictable is the variable element?

• Contractual commission that forms a guaranteed part of your pay structure is treated most favourably
• Regular non-contractual commission that you have received consistently for 2+ years is usually accepted at some percentage
• Annual discretionary bonuses are treated more cautiously because your employer can choose not to pay them
• One-off bonuses (signing bonuses, retention payments) are generally not counted at all

What Percentage Do Lenders Count?

This varies significantly:

Lenders like Barclays and NatWest tend to be more generous with commission income. Others, particularly some building societies, may take a more conservative approach. The best lender for you depends on the split between your basic and variable pay.

What Evidence You Need

Lenders want proof that your variable income is real, regular, and likely to continue:

• Latest 3-6 payslips showing the commission or bonus breakdown
• P60s for the last 2-3 years showing total earnings
• Employment contract confirming the commission or bonus structure
• Employer's letter confirming the variable pay arrangement and its expected continuation
• Bank statements showing income deposits

The more years of evidence you have, the better. If you have received consistent commission for five years, that is a much stronger story than one good year.

Commission-Heavy Roles

Some professions are heavily commission-based — estate agents, recruitment consultants, car salespeople, financial advisers, and sales roles generally. If commission makes up 50% or more of your total pay, you need a lender who will count a high percentage of it.

Example: recruitment consultant

• Basic salary: £28,000
• Average annual commission (over 3 years): £42,000
• Total actual income: £70,000

With a lender counting 100% of averaged commission:

• Assessable income: £70,000
• Potential borrowing at 4.5×: £315,000

With a lender counting 50% of commission:

• Assessable income: £49,000
• Potential borrowing at 4.5×: £220,500

That is nearly £100,000 difference in borrowing capacity — enough to fundamentally change what you can afford.

Bonus-Dependent Roles

Annual bonuses are common in banking, professional services, tech, and management roles. Lenders approach these differently from commission:

• Most want at least 2-3 years of bonus history
• They typically average the bonus over those years
• Some will use the lowest of the last two years rather than an average
• A few lenders will accept the latest year only if it shows the bonus is increasing

If your bonus fluctuates significantly year to year, lenders will be more cautious. A bonus that was £15,000, then £12,000, then £14,000 shows consistency. A bonus that was £5,000, then £25,000, then £8,000 shows unpredictability.

Maximising Your Borrowing

1. Gather three years of P60s — the longer the track record, the more lenders will count
2. Get an employer reference specifically confirming the ongoing nature of your variable pay
3. Time your application — if possible, apply after a strong bonus or commission period so your latest figures are high
4. Use a broker who knows which lenders are most generous with variable income
5. Consider the timing of payslips — if your commission is seasonal, ensure your recent payslips reflect a typical or above-typical period

Overtime and Shift Allowances

While we are discussing variable income, overtime and shift allowances follow similar rules. Lenders typically want 6-12 months of evidence and will average the overtime income. Some count it at 100%, others at 50%.

If you rely on overtime to reach your borrowing target, make sure your payslips clearly separate overtime from basic pay, and that you have a consistent history of working those extra hours.

When Commission Income Falls

One concern lenders have — and one you should share — is what happens if your commission drops. If you are stretched to afford the mortgage based on a combination of basic salary and high commission, a bad quarter could leave you struggling.

Responsible borrowing means ensuring you could still meet your payments if your variable income dropped by 30-50%. Lenders stress-test for this, but it is worth doing your own calculations too.

Detailed Income Calculation Examples

Let us work through specific scenarios to show how different lender approaches affect your borrowing.

Scenario 1: Estate Agent — High Commission, Low Basic

Basic salary: £22,000 Commission history:

• Year 1: £35,000
• Year 2: £28,000
• Year 3: £41,000
• 3-year average: £34,667

Lender A (100% of averaged commission):

• Assessable income: £22,000 + £34,667 = £56,667
• Borrowing at 4.5×: £255,001

Lender B (50% of averaged commission):

• Assessable income: £22,000 + £17,333 = £39,333
• Borrowing at 4.5×: £177,000

Lender C (uses lowest of last 2 years commission):

• Assessable income: £22,000 + £28,000 = £50,000
• Borrowing at 4.5×: £225,000

Difference between best and worst: £78,001 — a life-changing amount when choosing a home.

Scenario 2: City Worker — Large Annual Bonus

Basic salary: £65,000 Bonus history:

• Year 1: £25,000
• Year 2: £32,000
• Year 3: £18,000 (bad year)
• Average: £25,000

Lender A (50% of averaged bonus):

• Assessable income: £65,000 + £12,500 = £77,500
• Borrowing at 4.5×: £348,750

Lender B (latest year bonus at 100%):

• Assessable income: £65,000 + £18,000 = £83,000
• Borrowing at 4.5×: £373,500

Lender C (ignores bonus entirely):

• Assessable income: £65,000
• Borrowing at 4.5×: £292,500

Interestingly, in this case Lender B produces the highest figure despite using the worst bonus year — because they count it at 100% rather than averaging and discounting. This is why understanding each lender's specific methodology matters more than general rules.

Scenario 3: Sales Manager — Commission Structure Recently Changed

Basic salary: £45,000 Old commission structure (first 18 months): Average £18,000/year New commission structure (last 6 months): Annualised rate of £28,000/year Employer changed the scheme 6 months ago

• Some lenders will only count the 6 months under the new structure, annualised: £28,000
• Others will average across the full period including the old structure
• A few may not count commission at all because there is less than 12 months under the current scheme

If your employer recently changed the commission structure, the transition period can be awkward. The best approach is to get a letter from your employer explaining the change and confirming the new structure. Some lenders will accept annualised figures from the new scheme if the employer confirms it is the ongoing arrangement.

Lender-Specific Approaches to Variable Income

Different lenders have distinct methodologies. Here is a more detailed breakdown:

Barclays:

• Generally counts commission and bonus income
• Typically uses an average over 2 years
• May count up to 100% for regular, contractual commission
• Discretionary bonuses usually counted at a lower percentage

NatWest:

• Will consider commission income with 12+ months of evidence
• Can be generous with regular commission
• Bonus income typically averaged over 2-3 years
• Requires P60s and payslips showing the variable elements

Halifax:

• Accepts commission and bonus with evidence
• Usually averages over available history (up to 3 years)
• May use the latest year if it shows a clear upward trend
• Wants employer confirmation of ongoing variable pay

Nationwide:

• Considers commission and bonus income
• Tends to be moderate in how much they count
• May discount by 25-50% depending on the regularity
• Requires strong evidence trail

Accord Mortgages:

• Often flexible with variable income types
• Considered a good option for commission-dependent applicants
• May count a higher percentage than mainstream lenders
• Case-by-case underwriting gives room for individual circumstances

Kensington Mortgages:

• Specialist lender comfortable with non-standard income
• May accept commission and bonus where high street lenders will not
• Rates are typically higher but the acceptance criteria are broader

What Happens When Variable Income Drops Year-on-Year

This is a critical scenario that many applicants face. If your commission or bonus has been declining, lenders respond differently:

Declining commission over 3 years:

• Year 1: £40,000
• Year 2: £32,000
• Year 3: £25,000

Lender using average: (£40,000 + £32,000 + £25,000) ÷ 3 = £32,333 Lender using latest year: £25,000 Lender using lowest of last 2 years: £25,000

When income is declining, almost all methods produce a lower figure. But the averaging method (£32,333) is more generous than the latest year (£25,000). Some lenders, however, will not use an average when there is a clear downward trend — they will default to the lowest or latest figure.

What to do if your variable income is declining:

1. If the decline is temporary (e.g., you changed territories, a key client left, market conditions shifted), explain this in a covering letter. A broker can present a narrative around the dip.
2. If the decline reflects a structural change (company reducing commission rates, market shrinking), be realistic about the figure lenders will use.
3. Consider timing — if you know next quarter will be stronger, wait for those payslips to be included.
4. Focus on the basic salary — if your basic alone supports the mortgage you need, the variable income decline becomes less important.

The Employer Confirmation Letter: What It Must Say

A strong employer letter can make the difference between variable income being counted and being ignored. Here is what it should contain:

Essential elements:

• Your name and employee number
• Your job title and start date
• Your basic salary
• Description of the commission or bonus structure
• Confirmation that the variable pay arrangement is ongoing and expected to continue
• History of variable payments (if possible, include actual figures for the past 2-3 years)
• Whether the commission is contractual or discretionary
• Whether there are any anticipated changes to the structure

What the letter should NOT say:

• "Performance-dependent" without context (all commission is performance-dependent — the question is how consistently you earn it)
• "Subject to change at the company's discretion" without adding "no changes are currently planned"
• Vague language like "the employee may receive additional payments from time to time"

Ask your HR department for this letter well before you apply. If they have not written one for a mortgage before, give them a template or bullet points of what is needed. Some lenders provide their own template for employer references — your broker can supply this.

Document Checklist for Commission and Bonus Income

Payslips (essential):

• Latest 3-6 months at minimum
• Ideally 12 months or more
• Must clearly show the split between basic salary and variable pay
• Cumulative year-to-date figures are helpful

P60s (essential):

• Last 2-3 years
• Shows total annual earnings including all variable pay
• Provides the most reliable annual income figure

Employment contract:

• Must detail the commission or bonus structure
• Include any commission schedule, rate cards, or bonus matrix if available

Employer's letter:

• Confirming the ongoing nature of variable pay
• Ideally with historical figures included

Bank statements:

• 3-6 months showing salary deposits
• Useful for verifying payslip figures

Bonus statements (if applicable):

• Annual bonus notification letters
• Performance review documents showing bonus entitlement

Common Mistakes with Commission and Bonus Applications

Not separating variable pay on payslips. If your payslips lump everything into one "gross pay" figure without showing the basic/commission split, lenders cannot determine how much is variable. Ask your payroll department to itemise the components.

Applying immediately after a low month. If your latest payslip shows a poor commission month, it colours the underwriter's view even though they should be looking at the longer-term average. If possible, time your application after a strong month — the latest payslip creates a first impression.

Ignoring tax year boundaries. Your P60 covers a tax year (April to April). If your best earning period was split across two tax years, neither P60 may look as strong as your actual performance. A broker can present supplementary payslip evidence to show the full picture.

Not addressing commission structure changes proactively. If your company changed the commission structure mid-year, the lender will notice inconsistencies in your payslips. Get ahead of this by providing an explanation and employer confirmation of the change.

Overstating expected future commission. Some applicants tell brokers their commission "will be" £50,000 this year based on pipeline. Lenders do not care about pipeline — they care about evidenced history. Only actual, received commission counts. Be honest about what you can evidence, not what you hope to earn.

This is educational content, not financial advice. Your situation is unique — speak to a qualified mortgage broker before making any decisions.