Mortgage lenders can often use overtime, bonuses and commission, but they do not necessarily treat those earnings in the same way as basic salary.
If your contract says your basic salary is £40,000 but your P60 shows £55,000 because of overtime and bonuses, simply entering £55,000 into an online mortgage calculator can give a misleading result.
The lender first needs to establish what makes up the extra £15,000 and how much of it is sufficiently regular and sustainable to include.
That distinction can materially change the mortgage available.
What counts as variable income?
Variable income is employment income that can change from one pay period to another.
Typical examples include:
- overtime;
- monthly or quarterly bonuses;
- annual bonuses;
- commission;
- productivity payments;
- some additional duty payments;
- tips or service-charge income where the lender accepts them.
A lender may treat a fixed contractual allowance differently from genuinely variable earnings.
For example, a permanent location allowance or guaranteed shift payment may fit a lender's basic or guaranteed-income criteria, while additional optional shifts might be assessed as overtime.
The label on the payslip therefore matters.
Can lenders use 100% of my overtime, bonus or commission?
Sometimes they can use the full calculated figure, but there is no universal rule requiring every lender to do so.
Some lenders average qualifying income and then use the resulting figure under their normal affordability methodology. Others deliberately apply a percentage reduction because the income is variable.
HSBC currently says that where overtime, bonuses and commission are regular, a maximum of 60% of the average of the previous two years can be considered.
Halifax also currently applies a 60% affordability treatment to qualifying bonus income.
Different lenders can therefore produce different affordability results from exactly the same payslips.
Why do lenders average variable income?
A mortgage can run for decades, so the lender wants a realistic representation of the income likely to continue rather than simply using the applicant's best-ever month.
Suppose somebody receives commission of £2,000 in January, £800 in February and £1,400 in March. Using only January would annualise to £24,000, whereas the three-month average is £1,400 a month, or £16,800 a year before any further lender adjustment.
The precise calculation depends on the lender.
How does Nationwide calculate overtime, bonus and commission?
Nationwide groups these earnings together as bonus, overtime and commission income.
When the income is included in an application, Nationwide averages the qualifying payments.
The number of payslips required currently depends on how frequently the income is paid:
- weekly: 8 payslips;
- fortnightly: 6 payslips;
- four-weekly: 3 payslips;
- monthly: 3 payslips;
- quarterly: 3 relevant payslips;
- half-yearly: 4 relevant payslips;
- annually: 2 relevant payslips.
For less frequent payments, Nationwide also places limits on how old the historic evidence can be.
The figures are added together and averaged rather than simply choosing the highest payment.
What if one of my Nationwide payslips shows no overtime or bonus?
That can reduce the average.
Nationwide specifically says that payslips showing £0 within the relevant averaging period should not simply be ignored.
If the income is absent from one of the required periods, the zero can form part of the calculation.
This is important because borrowers sometimes assume a broker can submit only the payslips showing the highest overtime. That is not how a genuine historic average works.
If the latest payslip does not show the relevant bonus, overtime or commission, Nationwide also has specific rules about obtaining the next relevant payslip and calculating the average.
What about annual bonuses with Nationwide?
For annual bonus or annual commission, Nationwide currently requires two relevant payslips and says the payment must be present on both for it to be used.
That means a one-off annual bonus received for the first time this year would not automatically satisfy its standard annual-bonus criteria.
Half-yearly bonus or commission also has specific evidence rules: the income must appear on at least two of the four relevant proofs, including the latest proof.
These are Nationwide rules rather than universal mortgage-market requirements.
Can Nationwide combine overtime, bonus and commission?
Potentially, yes.
If an applicant receives more than one form of additional income, each type being used must appear on the required evidence.
The lender then assesses the qualifying components according to its criteria.
Nationwide also treats some income that is not clearly labelled bonus, overtime or commission according to whether it is fixed or variable across the supplied payslips.
This is why the wording on the payslip can affect how income should be entered.
How does Halifax treat overtime, bonuses and commission?
Halifax has its own income-keying methodology rather than simply using the gross annual figure from the applicant's P60.
For regularly paid monthly overtime, bonus or commission, Halifax's current tools use the relevant sequence of recent payslips to calculate an annualised amount.
For income paid less frequently, it can require evidence covering a longer period.
Commission is currently an acceptable employed-income type and Halifax generally requires the latest three months' payslips where it is received monthly.
Annual or less-frequent income requires different evidence.
How does Halifax treat annual bonuses?
For annual bonuses, Halifax currently uses the lower of the latest year's bonus or the average of the bonus received in each of the last two years.
In practical terms, if the latest annual bonus has fallen below the two-year average, the lower current figure is used rather than allowing an older higher payment to inflate affordability.
Halifax currently applies 60% of the resulting qualifying bonus figure within its affordability calculation to reflect the variable nature of that income.
What if I changed employer between annual bonuses?
Halifax has made an important policy change in this area.
Where a customer receives an annual bonus and has changed employer, Halifax can include a bonus paid by the previous employer when establishing the two-year history.
The latest year's bonus still needs to have been paid by the current employer, and Halifax requires evidence of the qualifying bonus payments for both years.
For example, if the current employer paid a £50,000 bonus in the latest year and the previous employer paid £40,000 in the year before, the two-year average is £45,000 before Halifax's separate affordability percentage is applied.
This is specifically a Halifax annual-bonus rule.
Commission has different requirements and Halifax states that qualifying commission must be from the current employer.
What if my bonus has fallen?
A falling bonus can reduce the figure accepted.
If bonuses were £20,000 in the previous year and £10,000 in the latest year, Halifax's current approach does not allow the older higher payment to inflate the usable figure above the lower current level.
This is why historic income alone does not determine mortgage affordability.
What about NHS overtime?
Some NHS earnings do not fit neatly into generic descriptions such as ordinary voluntary overtime.
Halifax currently recognises Waiting List Initiative payments and Additional Programme Activity as forms of NHS overtime.
Other NHS earnings may be treated as additional duty hours, shift allowance or overtime depending on their nature.
These components should therefore be identified and keyed according to the lender's specific income category rather than simply being blended into basic salary.
How does Santander treat overtime, bonuses and commission?
Santander separates different payment patterns and asks for evidence appropriate to the frequency of the income.
For bonus, commission or overtime paid monthly where the amounts are regular but inconsistent, its current residential criteria use an average from the latest three months' evidence and annualise the result.
For monthly-paid applicants, this generally means the latest three months' payslips.
For weekly-paid applicants, Santander requires the relevant sequence of weekly evidence together with earlier payslips identifying the additional income.
Santander also checks whether the resulting figure is supported by the year-to-date income shown on the evidence and may reduce the figure where it is not.
Why does the year-to-date figure matter?
It acts as a reasonableness check.
Imagine the most recent three months show unusually high commission. Annualising those three months might suggest £30,000 of annual commission.
If the year-to-date section of the payslip shows that the applicant has actually received only £10,000 over most of the year, blindly using the recent peak may produce an unrealistic result.
Santander expressly reserves the ability to reduce the income where the evidence does not support the annualised figure.
What if my Santander bonus is quarterly rather than monthly?
Santander has a different evidence route for bonus, commission or overtime paid less frequently than monthly.
Its current criteria generally require evidence showing the latest three relevant payments.
That allows the lender to assess a history rather than annualising a single quarterly payment.
Annual bonus or annual commission has its own requirements, normally involving the most recent payment and evidence of the previous tax year's payment.
The frequency of the earnings therefore changes the documents and calculation.
How does HSBC treat variable income?
HSBC currently accepts overtime, bonuses and commission where the income is shown to be regular.
Its published guidance says a maximum of 60% of the average of the previous two years can be used for qualifying variable pay.
HSBC's evidential matrix also requires the income to be evidenced separately according to how frequently it is paid.
Variable income paid monthly currently requires the latest three payslips, while more frequent payment patterns require a larger sequence of evidence.
HSBC specifically says each source of variable income should be assessed and evidenced separately.
That means an applicant with overtime plus commission should not assume the lender simply looks at one combined 'extra pay' number.
Is guaranteed overtime treated differently?
It can be.
The word 'guaranteed' needs to reflect the actual employment arrangement rather than the applicant simply expecting to work additional hours.
Some contractual payments can be treated differently from variable overtime where the employment documentation establishes that the payment is genuinely permanent or guaranteed.
Treatment varies between lenders.
If your contract states a fixed number of guaranteed additional hours every month, show the contract to your adviser rather than assuming those earnings must be averaged in the same way as optional overtime.
What if my overtime varies significantly?
Variable does not necessarily mean unacceptable.
A lender may still use an average where the history shows an established pattern.
For example, £400, £900 and £500 of overtime over three consecutive months is clearly variable but may still represent dependable recurring overtime.
A different situation would be £3,000 of overtime in one month followed by no overtime for the rest of the year.
The existence of one large payment does not automatically make it sustainable mortgage income.
What if I only started earning overtime recently?
That can restrict the lenders or calculations available.
Different lenders require different histories.
A few recent payslips may be enough for one type of regularly paid variable income under one lender's criteria but not for an annual payment or for another lender.
The safest approach is to establish when the extra earnings began, how frequently they are paid, whether they are contractual, whether the latest payments are representative and whether the employer expects them to continue.
This should be done before relying on the income to reach a particular mortgage amount.
How is commission treated?
Commission is often accepted, but it is inherently capable of fluctuating.
This is particularly relevant in occupations such as sales, recruitment, estate agency, financial services, automotive sales and business development.
A salesperson might have a £30,000 basic salary but routinely earn another £25,000 in commission.
A mortgage lender may be able to use a meaningful proportion of that commission, but it needs evidence rather than an employer's theoretical on-target earnings figure alone.
Recent actual payments and historic consistency are usually much more important than an aspirational OTE figure.
What if my commission or bonus is paid in a foreign currency?
Foreign-currency variable income can be subject to an additional lender-specific adjustment because of exchange-rate risk.
For example, HSBC's current foreign-currency matrix applies a haircut to qualifying gross foreign-currency income, with the percentage varying by currency; its published matrix includes 10% and 20% haircuts for many accepted currencies.
That should not be treated as a universal 10% or 20% mortgage-market rule. Other lenders have their own currency policies, and some income may not be acceptable at all.
There is also no universal requirement that qualifying income must be paid into a UK sterling bank account. The lender's own foreign-income and evidence rules need to be checked.
Can a lender use my on-target earnings figure?
Do not assume so.
An employment contract might state a £35,000 basic salary and £60,000 OTE.
The £60,000 figure usually assumes a particular sales or performance outcome.
Unless the lender's criteria specifically allow that form of guaranteed or contractual income, it may want to see the actual commission achieved.
If historic earnings show £42,000 rather than £60,000, the lender is unlikely to treat the aspirational figure as though it has already been earned simply because the employer labels it OTE.
What if my commission has increased sharply?
The lender may need to decide whether the higher level is sustainable.
A permanent change to the commission structure, larger client portfolio or documented promotion may explain a genuine increase.
A short spike immediately before the mortgage application may be treated more cautiously.
Lenders commonly compare recent evidence against a longer history rather than assuming the highest recent month will continue indefinitely.
Providing the correct evidence from the beginning can prevent unnecessary underwriting questions.
What if my bonus is discretionary?
A discretionary bonus can still be usable.
The important distinction is between a payment not contractually guaranteed and a payment that has no established history.
Many annual company bonuses are formally discretionary but recur over several years.
A lender may be prepared to use part of that history even though the employment contract does not guarantee a particular future amount.
This is exactly why lenders often use historic averages and percentage reductions.
Can a one-off bonus be used?
Not necessarily.
A payment made once for a unique transaction, exceptional performance or signing incentive may not satisfy the lender's normal recurring-income criteria.
Nationwide's current annual bonus and commission criteria, for example, require the relevant annual payment to appear on both historic proofs before it can be used under that route.
Another lender may have different requirements.
The adviser therefore needs to establish whether the payment is genuinely recurring rather than merely being labelled a bonus.
What if part of my bonus goes into my pension?
That can affect the amount the lender uses.
Nationwide currently says it considers only the cash element where part of a bonus or commission is paid directly into a pension.
This is another reason why gross remuneration packages cannot always be copied directly into a mortgage calculator.
What about tips and service charges?
Some lenders can use properly evidenced earnings of this type.
Nationwide, for example, treats qualifying tronc payments as commission and has specific evidence rules for employees receiving tips through TipJar.
That does not mean informal cash tips can automatically be treated as mortgage income.
The income must meet the lender's evidence and acceptability criteria.
Can variable income from a new employer count?
Sometimes.
Changing employer does not automatically wipe out every form of historic additional income, but the exact lender policy matters.
Halifax's current annual-bonus policy is a good example: it can use the previous employer's annual bonus as part of the two-year history where the latest year's qualifying bonus has been received from the current employer.
Halifax does not apply the same concession indiscriminately to commission.
Other lenders can take different approaches.
If you recently changed employer and rely heavily on bonus or commission, lender selection should take place before the application rather than assuming the old income history transfers automatically.
What if my variable income stops before completion?
Tell your mortgage adviser.
A mortgage offer is based on the income and circumstances disclosed to the lender.
If substantial overtime disappears, commission reduces materially or an expected bonus scheme is withdrawn before completion, the lender may need to reassess affordability.
The same applies if you know the income is about to fall.
Do not continue presenting historic variable earnings as a dependable future income source if you already know the underlying arrangement has changed.
Does accepted variable income increase borrowing pound for pound?
No fixed relationship exists.
Even after a lender decides how much overtime, bonus or commission it accepts, that income enters a broader affordability calculation.
The result can still be affected by loans, credit cards, childcare, dependants, mortgage term, interest-rate stress assumptions, loan-to-income limits and other committed expenditure.
An extra £10,000 of lender-accepted income therefore does not translate into one predetermined additional mortgage amount.
Can I use overtime, bonus or commission when remortgaging?
Potentially, yes, subject to the new lender's current criteria.
A remortgage lender does not have to reproduce the income calculation your existing lender used several years earlier.
Its evidence requirements, averaging period and percentage treatment may be different.
This is particularly important if you want to raise additional borrowing and need variable earnings to reach the required affordability.
What should I prepare before applying?
Gather enough evidence to show the pattern rather than just the best payslip.
Useful information can include:
- basic salary;
- type of additional income;
- payment frequency;
- latest payslips;
- earlier payslips showing annual or less-frequent payments;
- latest P60 where relevant;
- employment contract where a payment is contractual;
- details of a recent employer change;
- evidence explaining a material increase or reduction.
Your adviser can then apply the actual lender calculation rather than estimating from your total annual earnings.
What should I tell my mortgage adviser?
Break the income down clearly.
Instead of saying 'I earn about £60,000', a much more useful explanation is: 'My basic salary is £42,000. I have received about £8,000 a year in overtime for the last two years, plus an annual performance bonus of £10,000 last year and £7,000 the year before.'
Those components may be treated differently.
A broker can then compare lenders using the real income structure rather than an inflated or overly cautious combined figure.
What are the biggest mistakes to avoid?
Common problems include:
- entering gross P60 income as though it were all guaranteed salary;
- assuming every lender uses 100% of variable pay;
- submitting only the highest payslips;
- ignoring months where no overtime or commission was paid;
- treating a one-off bonus as recurring income;
- using OTE rather than evidenced commission;
- failing to mention a recent employer change;
- assuming an annual bonus and monthly commission use the same evidence;
- continuing to rely on income that is known to be reducing;
- assuming an Agreement in Principle means the variable income has been fully verified.
How can FG & Cook help?
Overtime, bonus and commission cases illustrate why the headline annual income on a P60 does not always tell you how much a mortgage lender will use.
Two applicants with identical total earnings can receive materially different affordability outcomes because the earnings are structured differently.
FG & Cook can separate the basic salary from each variable component, establish the payment history and compare that evidence against current lender criteria before selecting the mortgage.
That can be particularly valuable for applicants who rely heavily on commission, annual bonuses, irregular overtime or a recent change of employer.
The objective is to use a lender whose calculation fits the genuine income history rather than forcing every type of earning into one annual salary figure.
Mortgage approval is never guaranteed and remains subject to full underwriting, affordability, valuation and legal-title requirements.
FG & Cook Financial Services Limited is an appointed representative of OSL Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority under FRN 948512.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
This article is intended for general information only and does not constitute personalised mortgage, employment, tax or legal advice. Lender criteria and individual underwriting decisions vary.