Securing a large mortgage using bonus income can be difficult, especially if you’re enquiring with high street lenders. Private bank mortgage products are often a better choice for those with large bonuses – and yet many feel like this isn’t a viable option, with potential borrowers believing they don’t fit the mould of a traditional private banking client. Fortunately, as this case study demonstrates, that’s changing fast.
The client:
Our client in this case was a British national employed at a hedge fund in London. This individual hoped to purchase a beautiful five-bedroom home in a desirable South West London location. The property was valued at £3.5 million and would be purchased with a 25% deposit, funded from the sale of his current home.
Considering his overall income, he was comfortably able to service a loan of this size. However, as with many hedge fund workers, the bulk of his income came through his yearly bonus, rather than his basic salary – meaning he needed to source a large mortgage using bonus income to make up the majority of his affordability.
This is difficult to find in mainstream lending, since most high streets lenders limit the amount they are willing to offer potential borrowers at somewhere between four and a half to five times annual income – by which they mean standard salaried income, not bonuses.
With bonus pay, different lenders accept different levels of bonus income when calculating affordability; some will take an average of two years, others require longer, and some will only accept a certain percentage of the full amount, which can seriously limit how much you are able to borrow. For those who receive significant bonuses, like our client, this can be a real issue when it comes to calculating affordability for a high-value home.
The solution:
As a rule, private banks are able to take a more holistic view of bonus and alternative incomes. However, many potential borrowers have a misconception that private banks are only an option for ultra high net worth (UHNW) individuals, or those who are willing to place assets under management (AUM) with a bank in order to secure property finance. Yet the modern private banking landscape has evolved significantly over the last ten years, meaning a broader range of clients than ever before are able to benefit from private bank mortgage products.
We knew a number of private banks currently lending who would be able to factor in this client’s bonuses to the required level, or exceed standard affordability calculations, but without requiring him to place AUM.
In this instance, we placed this individual with a private bank which was able to go beyond the standard high street five-times-income-multiple to offer our client the loan he required at 75% LTV. This excellent outcome illustrates clearly how the world of private banking has changed – and that such mortgages are more accessible than ever before for a range of individuals seeking to buy high-value property in the UK.
The case in brief:
- Hedge fund worker seeking mortgage using bonus income
- £3.5 million property purchase at 75% LTV
- Private bank
- No AUM required
