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:
Examples would be:
- Primarily employed, with secondary self-employed earnings.
- Primarily self-employed earnings, with secondary employed
earnings.
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