salary calculation for mortgage come back really low

ruby2sday

Hey! So I used my p60 to give my salary when applying for a mortgage but my broker has just come back to me with a way lower figure of over 2.7 grand less than what I actually got paid. I found it’s because they used the last 3 months payslips and don’t include holiday pay, and I had loads of holiday left over I needed to take before April. I used loads of holiday over those 3 months and obviously got paid same as I usually would because it’s paid, but it just apparently doesn’t count when lenders work out my salary which seems really stupid!

Secondly, I’m also self employed and have been for 1 and a half years. They luckily will take that income into account but instead of using the full years income, they’re using an average, but obviously the first years accounts if only been in business for 6 months so it’s making my self employed earnings look way lower. I know there are some lenders that will go on just the latest tax year but they won’t lend 4.75 times salary like the lender I’m using does.

Is this definitely right? If I’d have known it would drastically reduce the amount I could borrow I just wouldn’t have taken the holiday I was owed!

ReadingTim

If you're using an independent whole of market broker then their job is to find the best deal there is for you - that's what they're being paid to do. I'm not sure why you think unqualified random strangers off the internet can do a better job, unless you're just looking for someone to tell you what you want to hear.

So I'd be putting these questions to your broker, but it might just be the case that if you want to borrow more, you're going to either provide 3 months of more 'regular' payslips, or wait until you've been self-employed for a bit longer and can demonstrate a track record of higher income with reference to full year accounts.

lisyloo

It sounds correct to me.
Your holiday payments are not regular payments and cannot be expected in future, so why would you expect a lender to base lending on one-off income??

Why can’t you ask the professsional?

norsefox

Holiday pay is a statutory obligation. By definition they are paid when you’re not at work and on holiday.

If a lender took account of only the earnings you made for 46.543 days per year then they’d be doing you a massive disservice (52.143 weeks -5.6 weeks statutory holidays) - your actual pay would be 12.07% higher!

Plenty of employers, in particularly anyone in a position whose job must be filled (i.e when you’re on holiday someone else is paid to cover it) will issue payslips with a holiday pay breakdown that replaces the identical normal earnings.

I may have misunderstood it, but holiday pay is just simply a breakdown of earnings, it not adding or reducing anything, it’s simply a category of salary.

ruby2sday

Because the holiday payments aren’t EXTRA pay, they’re just me being paid for the normal amount of days I work per month, even though I was off for some of those days I would usually work. It’s just me receiving the same pay I would have received if I worked my usual contracted hours, but the days I was on holiday but still got paid are recorded as “holiday pay” to show how many hours of my entitled holiday I used. So they are regular payments. I get the same amount whether I work my normal hours or use some holiday.

ruby2sday

If a lender took account of only the earnings you made for 46.543 days per year then they’d be doing you a massive disservice (52.143 weeks -5.6 weeks statutory holidays) - your actual pay would be 12.07% higher!

Plenty of employers, in particularly anyone in a position whose job must be filled (i.e when you’re on holiday someone else is paid to cover it) will issue payslips with a holiday pay breakdown that replaces the identical normal earnings.

I may have misunderstood it, but holiday pay is just simply a breakdown of earnings, it not adding or reducing anything, it’s simply a category of salary.

Exactly. I’m not trying to say the professional broker is wrong, but this just seems to make no sense. I understand that the broker has infitely more knowledge of all this than me but I just wondered if it was possible he could have mistaken the holiday pay for extra pay on top of my usual pay for holiday I hadn’t taken. The whole point of statutory holiday is that you still get paid your full salary for the year even though you’ve taken a few weeks holiday.

kingstreet

If when on leave your salary goes down and is supplemented by holiday pay to bring it back up to its 'normal' level, it should be included and would be by any lender I can think of...

The only time I can see it ignored is if your employer has purchased holiday from you and this is additional, rather than replacement pay.

A lender will usually only take SE income when there is a two year trading record and it will take the average or latest year's net profit whichever is the lower.

If you have a lender willing to accept less than two years you are just going to have to accept how they choose to calculate the allowable income.

ruby2sday

I explained all this to the broker and he says he’ll have to ask the underwriter at Halifax and if indeed they shouldn’t have deducted the “holiday pay” then they will adjust it accordingly

Chandler85

Your problem is as was said before.


A lot of organisations won't actually show holiday pay on a wage slip, it would jsut show a normal wage.


If it wa smarked Holiday Pay then this would likely be holiday "paid" because you couldn't take them in the period given to you, just as when you leave a job and have 8 days holiday left but only 5 days you can take them. You woudl get 3 days "extra" holiday pay.


The mortgage company has assumed this is the case with the information you have provided, hence they are classing it as above your standard salary. You might want to get a quick letter from your HR to clarify that they use holiday pay on a wage slip when someone jsut has a day off, and not as extar amount when holiday can't be taken in a time period. With that a human underwriter will be happy, the computers ones will just ignore it

ACG

According to your contract, what is your basic gross annual income - that is the figure they should be using.

If your income drops whilst you are away, that would make me think you are not on a full time permanent contract in which case you may find what lenders will use varies. We have one at the minute where someone is on a 0 hours contract and we are having to get 52 payslips to total up what their annual income is, very time consuming but it works better for them.