Andrew's basic salary is £30,000 but he gets quarterly bonuses and does some freelance consultancy providing him with a secondary income. As a result he is unsure as to how much he can borrow.
Due to his variable income he would like the ability to make overpayments and have the option to underpay when necessary. What are his options?
Maria Harris, head of sales for Bank of Scotland Mortgages
To ensure that all of Andrew’s additional income can be considered in his application he should select a self-cert mortgage. True self-cert lenders understand the complex financial circumstances of people who are self-employed or receive a large proportion of their pay through bonuses and secondary incomes.
The Bank of Scotland Intermediary website has a self-cert calculator that could indicate the recommended loan amount based on Andrew's various incomes and expenditures.
Many lenders offer flexible features on their products. Bank of Scotland would allow Andrew to repay up to 10 per cent of his balance per annum without incurring an early repayment charge.
Alternatively he could choose a fully flexible mortgage like Bank of Scotland's Personal Choice product. Personal Choice would allow Andrew to make lump-sum overpayments, underpayments and provide him with a cheque book that would allow him to access an additional 5 per cent drawdown facility or any overpayments he has already made.
David Hollingworth, head of communications for London & Country
It’s always tempting to head straight for a self-certification product when someone starts talking about several different income streams.
However, before that point is reached it is important to carry out a thorough fact finding process to find out more about how the income is made up.
Andrew should have some accounts that show the level of income from his freelance activity. Other important elements will be the multiple of income required and the level of deposit that Andrew can put down.
If he has a good track record on the variable income then there is no reason why it should not be taken into account and a standard product be accessible.
As he will have varying income from one month to the next, seeking flexibility makes sense. He can then overpay when times are good while retaining the ability to draw back in the thinner months. Offsetting could be an ideal solution.
Jonathan Harris, associate director, Savills Private Finance
It is not easy to establish how much Andrew will be able to borrow as we don’t have details of his bonus. But as long as it is regular and he has a proven track record of receiving it – at least one full year - lenders will take it into account when deciding the size of mortgage he can have.
Lenders will also take the freelance consultancy work into account but again, they will want to see a track record of earnings and evidence of any contracts in place for future work.
More flexible mortgage arrangements, allowing overpayments, underpayments and even payment holidays, are extremely popular among those with fluctuating incomes.
If Andrew simply wants to overpay, he could opt for any mortgage as most allow borrowers to overpay by up to 10 per cent of the mortgage amount per annum without penalty.
However, if he wishes to underpay as well he will have to opt for a mortgage with flexible features. There are plenty to choose from although he should expect to be charged a bit of a premium on the rate compared with a standard deal as you pay for flexibility.
