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Income

General policy | Buy-to-Let policy | Income | Property | Special lending situations

 

Index

Overview

All applications are assessed on a number of criteria, with affordability always being a key consideration. This allows the individual circumstances of your client to be taken into account and flexible lending decisions to be made based on your client's ability to repay the mortgage. And of course, you can always discuss a specific case with your Business Development Manager.

 

 

Employed customers

The loan must be assessed on current gross basic and/or total employed income, additional income, rental income and/or current/future retirement income.

 

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Gross basic income

 

Defined as gross pay only and excludes any other elements, eg overtime/shift allowance or additional payments such as commission or flexible benefits. Typically, gross basic income is described on a payslip as 'basic salary/pay' and is the same amount every month.

 

If a customer receives gross basic income only, or does not want to use any other element of their income, you will only need to see the latest payslip to verify their income.

 

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Total employed income

Defined as income from permanent employment that is available for use in meeting the monthly mortgage payment.

 

Total employed income includes all elements detailed on a payslip, with the exception of annual/half-yearly bonuses and large 'one-off' payments.

 

Examples of total employed income include:

 

  • Basic salary
  • Overtime/Shift allowance (doesn’t have to be guaranteed, but must be detailed on payslip)
  • Large town allowance, eg London weighting, cost of living supplement etc
  • Mortgage subsidy
  • State pension - not widow’s
  • Private pension
  • Company pension
  • Car/Housing/Clothing allowance
  • Fixed-term contracts
  • Bonus - quarterly/monthly/weekly only
  • Commission
  • Piece work (permanent employment only)
  • Flexible benefits
  • Stipend

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Additional income

Any additional income entered may need to be verified. If it is likely to be insignificant or difficult to verify do not use.

 

When entering any ‘additional income’, only 75% of the total amount entered is used within the affordability calculation.

 

Acceptable additional income:

 

  • Rental income received from other properties (not buy–to-let applications)
  • Child Benefit payments
  • Disability Living Allowance
  • Maintenance
  • Bonuses - annual/half yearly
  • Investment income/Annuity income
  • Income from foster children or lodgers
  • Trust income (bank statements are not acceptable; must obtain solicitor’s letter confirming the amount payable each month and, if a capital lump sum can be obtained, to what extent)
  • Incapacity Benefits/Industrial Injuries Disablement Benefit
  • Permanent health insurance
  • Widow’s pension
  • Student loans/Grants/Bursaries
  • Working Tax Credits/Child Tax Credits
  • Expected rental income (main residence cases only)
  • Adoption Allowance
  • Carer's Allowance

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Retirement income

This will be used to assess affordability when the customer is currently working, within 5 years of their planned retirement date and has requested a term which exceeds that date.

 

Future retirement income

 

  • Future retirement income must be used where the customer is within 5 years of their planned retirement or their 65th birthday, whichever is the earliest, and the term exceeds retirement.
  • For retired customers or where future retirement income is being used to assess affordability, only the following can be used: rental income from other properties (not buy to let), income from trusts and investments and where the customers own a business & continue to receive income. This income must be available to support the mortgage commitment for the entire term of the mortgage, together with any pension income.

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Self-employed income

  • Customers must normally have been self-employed in their current business for a minimum of two years.
  • Mortgage underwriters must approve any applications from customers who have been self-employed for less than one year.
  • C&G Underwriters must approve any applications where the total lending amount is greater than £250k and one or more of the customers is self employed.
  • The customer must be able to demonstrate that profits of their business are stable or rising.
  • Additional income, rental and retirement income may also be used for self-employed customers.
  • Sub-contractors may be treated as self-employed depending on how they are paid (see below for details).

Customer works for a single employer

 

A self-employed customer who is sub-contracted to a single employer must be treated as ‘employed’ when:

 

  • The customer continues to work for the same employer (becomes PAYE).
  • The customer continues to work for the same employer and the company pays the customers’ tax and National Insurance.

Customers who have more than 30% holding in a business

 

Where a customer has more than 30% interest in a partnership or limited company (public or private), they must be treated as self-employed.

 

If joint customers own 30% or more between them, treat both customers as self-employed.

 

Customers employed in a family business

 

Where a customer is employed in a family business but does not own a share in the business or owns LESS than a 30% interest, treat as ‘employed’.

 

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Rental income

This is for buy to let applications, and only rental income from the property being applied for can be used.  For joint applications, this must be entered under customer one.

 

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Special Scenarios

Customers employed by a private individual

 

Customers employed by a private individual, eg the customer is a nanny or gardener, will still be able to produce payslips/employer's reference because their employer has to register the employment with HM Revenue & Customs. They may be handwritten or computer generated.

 

Maternity

 

  • If a customer is on maternity leave at time of application, use the income received at that point.
  • If the customer is due to return to work within the next three months, the future income can be used. An employer's contract, employer's reference or letter from the employer will be required.
  • If the customer is receiving statutory maternity pay and is also receiving some income from his or her employer, both parts of this income can be used
  • If the customer is due to go on maternity leave in future, but is still currently working, their current income must be used.

Child minding

 

Where a customer is a childminder they can be treated as self employed.

 

Split incomes or second jobs

 

Where a customer has income from two or more types of employment, both can be used provided they are:

 

  • Stable
  • Long term

Examples would be:

 

  • Primarily employed, with secondary self-employed earnings.
  • Primarily self-employed earnings, with secondary employed earnings.

 

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