Mortgage affordability and bonuses

Winlin

Newbie here - my daughter is currently buying her first flat and Nationwide have just lowered the offer they will loan her because she paid her £19k profit share from her employer directly into her pension last year, avoiding tax, planning for her future and getting a further £3k contribution from her employer.  Nationwide say because it didn't go into her bank account they won't allow it to count (they ask for a 2 year average of bonus etc.) It would seem she could have taken the £19k and spent it on partying and they would have counted it - but because she very sensibly invested it they won't.  She has a 40% deposit.  

Has anyone had any experience of challenging a decision like this or should she just move on and try and find another lender?

Thanks

BrimfulofSascha

The mortgage lender is wanting to assure that your daughter can repay the mortgage. If your daughter pays her substantial bonus into a pension (where it is locked until she retires) it cannot be used in the calculation for affordability as that money can not be called upon for making monthly repayments. 
Her decision to invest in her future is sensible, but an amount locked away cannot be counted as available moneys for debt repayment. It makes total logical sense when you think about what her actual available money each month is. It is the same reason why mortgage lenders ask about student loan repayments. That money can't be used towards the mortgage so those earnings don't count.

BrimfulofSascha

Has she spoken to a mortgage broker? although most lenders (and a quick google search) could tell you that this view is the norm

Winlin

BrimfulofSascha said:

The mortgage lender is wanting to assure that your daughter can repay the mortgage. If your daughter pays her substantial bonus into a pension (where it is locked until she retires) it cannot be used in the calculation for affordability as that money can not be called upon for making monthly repayments. 
Her decision to invest in her future is sensible, but an amount locked away cannot be counted as available moneys for debt repayment. It makes total logical sense when you think about what her actual available money each month is. It is the same reason why mortgage lenders ask about student loan repayments. That money can't be used towards the mortgage so those earnings don't count.

I understand that but the fact is she could have taken that bonus and spent it on plastic surgery and cocaine if she wished and they would have accepted it as counting towards affordability.  Their reasoning was they had to see it entering her bank account - what she did with it after that they didn't seem to care.

ReadySteadyPop

Winlin said:

Newbie here - my daughter is currently buying her first flat and Nationwide have just lowered the offer they will loan her because she paid her £19k profit share from her employer directly into her pension last year, avoiding tax, planning for her future and getting a further £3k contribution from her employer.  Nationwide say because it didn't go into her bank account they won't allow it to count (they ask for a 2 year average of bonus etc.) It would seem she could have taken the £19k and spent it on partying and they would have counted it - but because she very sensibly invested it they won't.  She has a 40% deposit.  

Has anyone had any experience of challenging a decision like this or should she just move on and try and find another lender?

Thanks

Can she find a cheaper property?

jimbog

Winlin said:

Newbie here - my daughter is currently buying her first flat and Nationwide have just lowered the offer they will loan her because she paid her £19k profit share from her employer directly into her pension last year, avoiding tax, planning for her future and getting a further £3k contribution from her employer.  Nationwide say because it didn't go into her bank account they won't allow it to count (they ask for a 2 year average of bonus etc.) It would seem she could have taken the £19k and spent it on partying and they would have counted it - but because she very sensibly invested it they won't.  She has a 40% deposit.  

Has anyone had any experience of challenging a decision like this or should she just move on and try and find another lender?

Thanks

Worth trying a different lender. There's been an increase of lower deposit mortgages that are now available. And interest rates have dropped

https://www.bbc.co.uk/news/articles/ckgxdyyz8e1o

Has she used a broker?

Herzlos

Is it a miscommunication where they don't know if it can go into her account? Has she shown them her pay stubs?

A lot of lenders don't count bonuses towards affordability because they are rarely gauranteed.

Bigphil1474

I think the issue is that she wasn't paid the bonus, the bonus went straight into her pension fund, which was not only tax free but drew an extra deposit from her employer. I think it's just a choice that will work well for the pension, but not so well for mortgage affordability.

You could argue that all wages could be blown on plastic surgery and cocaine, but the mortgage lender is probably expecting that the mortgage is paid before those. If they haven't seen the money paid in wages, and there's no way to access that money, then I don't see how it could be included in affordability assessments.