How do lenders treat bonus and commission income?

For people in sales, finance and many corporate roles, bonuses and commission can be a large slice of total income, sometimes larger than the base salary. How a lender treats this variable income is therefore central to borrowing power. Here is how lenders tend to approach it.

Why lenders treat it cautiously

Bonus and commission income can vary from year to year and is not guaranteed, so lenders treat it more cautiously than base salary. They commonly average it over a period and may shade it, counting only a portion, to allow for the chance it could fall. This protects the lender but can understate a strong earner real income.

Averaging the income

A frequent approach is to average bonus or commission over a period, often one to two years, to smooth out fluctuations. Some lenders average over a shorter period, such as the most recent year, which can help where your income has been rising. The averaging period a lender uses varies.

Shading the income

In addition to averaging, lenders may shade the income, counting a percentage rather than the full amount. Some lenders count a higher proportion of consistent commission than others, particularly where there is a strong, steady history. How much is counted differs between lenders.

Consistency is rewarded

A steady history of bonuses or commission is treated far more favourably than a recent or erratic one. A consistent track record over a couple of years gives a lender confidence the income will continue, which can mean more of it is counted. Erratic or one off amounts are harder to rely on.

Documentation matters

Lenders want clear evidence of the income, such as payslips, an employment letter setting out the commission structure, and tax returns or group certificates showing the history. The clearer the documentation, the more comfortably a lender can include the income.

It varies a lot between lenders

Because both the averaging period and the shading differ between lenders, the same bonus or commission earner can be assessed very differently depending on where they apply. For high variable income earners, this is one of the biggest levers on borrowing power, which is why the choice of lender matters.

Find the lender that values your income

Because treatment varies so much, the useful step is to match your income profile to a lender whose policy counts it favourably. A broker can identify those lenders and present your bonus and commission history in the strongest way, usually at no cost to you. This is general information, not advice.