Remortgage With Overtime Income

How Lenders Treat Overtime Income

Most UK mortgage lenders will consider overtime income as part of your affordability assessment, but the way they calculate it varies considerably. Understanding these differences can help you target the lenders most likely to give you the best deal based on your specific overtime pattern.

The most common approach is for lenders to accept a percentage of your average overtime earnings. Typically, lenders will count between 50 and 100 per cent of your overtime, depending on their individual policies. Some of the more conservative lenders may only count 50 per cent, while more flexible ones will take the full amount.

To calculate your overtime, lenders will usually average your earnings over a period of three to six months, or sometimes twelve months. They look at the variable element of your payslips to identify overtime payments and calculate a monthly or annual average. The longer the period they look at, the more representative the figure is likely to be.

Some lenders distinguish between regular and irregular overtime. Regular overtime that appears consistently on your payslips each month is viewed more favourably than sporadic overtime that only occurs occasionally. If your overtime is contractual or guaranteed, it may even be treated as part of your basic salary by some lenders.

A few lenders take a more nuanced approach and will look at your P60 annual earnings figure, which includes all overtime, and use this as the basis for their income calculation. This can be advantageous if your payslips show variable overtime but your overall annual earnings are consistent.

It is worth noting that some lenders have a cap on the percentage of total income that can come from overtime. For example, they may stipulate that overtime cannot represent more than 25 or 50 per cent of your total assessed income. If your overtime is proportionally very high compared to your basic salary, this cap could limit your borrowing.

What Evidence Do You Need for Overtime Income?

Providing thorough documentation of your overtime earnings is essential for a successful remortgage application. The better your evidence, the more likely the lender is to accept your overtime income at its full value.

The primary documents lenders will ask for include:

• Payslips showing overtime - Typically the last three to six months, with overtime clearly itemised as a separate line from your basic pay. Some lenders may request up to twelve months of payslips to establish a reliable average
• P60 annual summary - This shows your total earnings for the tax year, including all overtime. Having P60s for the last two years can demonstrate consistency in your overall earnings
• Employment contract - This confirms your basic salary, contracted hours and any provisions relating to overtime availability
• Employer letter - A letter from your employer confirming that overtime is regularly available and is expected to continue. This can be particularly persuasive for lenders who need reassurance about the ongoing nature of your overtime earnings

When gathering your evidence, make sure that overtime is clearly identifiable on your payslips. If your employer uses abbreviations or codes that are not immediately obvious, it can be helpful to include a key or explanation. Lenders need to be able to distinguish overtime from other variable payments such as bonuses or allowances.

If your overtime has been particularly high in recent months, be prepared for the lender to ask whether this level is sustainable. Having an employer letter that confirms regular overtime availability can help address any concerns about whether your current earnings are representative of your long-term income.

Keep your records well organised and clearly labelled. Submitting a neat, complete set of documents makes a positive impression on the underwriter and can speed up the assessment process. Missing or unclear documentation is one of the most common causes of delays in mortgage applications.

Maximising Your Borrowing Power With Overtime

If overtime forms a significant part of your income, there are several things you can do to maximise the amount lenders will consider when assessing your remortgage application.

Build a consistent overtime track record. Lenders are more likely to accept overtime income at its full value if they can see a regular pattern over an extended period. Try to maintain consistent overtime levels in the months leading up to your application, even if this means turning down the opportunity to take leave during your highest-earning period.

Choose the right lender. Not all lenders treat overtime the same way. Some will count 100 per cent of your average overtime, while others only count 50 per cent. A broker can identify which lenders offer the most favourable treatment of overtime income and match you with the best option for your circumstances.

Provide comprehensive evidence. Going beyond the minimum documentation requirements shows the lender that your overtime is a reliable, ongoing part of your income. Twelve months of payslips, two years of P60s and a supportive employer letter create a much stronger case than the bare minimum of three payslips.

Consider the timing of your application. If you know that overtime is typically higher during certain months, try to ensure your most recent payslips capture this peak period. Some lenders focus more heavily on recent payslips, so having strong recent earnings can work in your favour.

Ask your employer for a detailed letter. A letter that specifically confirms the availability and expected continuation of overtime can carry significant weight. Ask your employer to include details about average overtime hours, how long overtime has been available in your role, and whether it is expected to continue at similar levels.

Reduce other debts. The less you owe on credit cards, loans and other commitments, the more of your overtime income the lender can allocate towards mortgage affordability. Clearing even small debts before applying can make a meaningful difference.

Regular Overtime vs Irregular Overtime

The distinction between regular and irregular overtime is important because lenders treat them differently. Understanding which category your overtime falls into can help you target the right lenders and set realistic expectations about how much will be counted.

Regular overtime refers to overtime that appears consistently on your payslips, month after month, even if the exact number of hours varies. This might include situations where your employer routinely needs extra cover, where overtime is built into the working culture of your organisation, or where you have an informal agreement to work additional hours each week.

Lenders generally view regular overtime very favourably. If it has been consistent for six months or more, most will include it in their income calculations, though the percentage they count may vary from 50 to 100 per cent. Some lenders will even treat very consistent regular overtime as part of your basic income.

Irregular overtime is overtime that occurs sporadically, perhaps only during busy periods, project deadlines or when covering for absent colleagues. While this can boost your take-home pay significantly during certain months, lenders are naturally more cautious about relying on it as an ongoing income source.

For irregular overtime, lenders may take a lower percentage or average it over a longer period to smooth out the peaks and troughs. Some may choose not to count it at all if it is too unpredictable. However, if you can show a pattern over two or more years that demonstrates irregular overtime consistently adding to your annual income, this can help make the case for including it.

Contractual or guaranteed overtime is the gold standard from a lender's perspective. If your employment contract guarantees a certain number of overtime hours per week or month, this is treated much like basic salary. Very few lenders will discount contractual overtime, and most will include it at its full value.

If you are unsure how your overtime would be categorised, your payslips and employment contract will provide the key evidence. A broker can then advise you on which lenders would treat your specific type of overtime most favourably.

Overtime and Affordability Stress Testing

When lenders include overtime in their affordability calculations, they still apply the standard stress test to ensure you could manage your mortgage payments if interest rates were to rise. Understanding how this works with overtime income is important for setting realistic expectations.

The FCA requires lenders to stress test your affordability at a rate higher than the product rate, typically the lender's standard variable rate plus a buffer. This means your assessed income, including overtime, needs to support the mortgage at this higher hypothetical rate, not just the actual rate you will pay.

Because lenders often count only a portion of overtime, the income figure used for stress testing may be lower than what you actually earn. For example, if you earn 30,000 pounds basic plus 10,000 pounds in overtime but the lender only counts 50 per cent of overtime, your assessed income would be 35,000 pounds rather than the full 40,000 pounds.

This reduced income figure is then multiplied by the lender's income multiple, typically 4 to 4.5 times, to determine the maximum mortgage amount. Using the example above, a 4.5 times multiple on 35,000 pounds gives a maximum mortgage of 157,500 pounds, compared with 180,000 pounds if the full 40,000 pounds were used.

The affordability calculation also factors in your existing commitments and essential expenditure. The more of your income that is committed to other debts and living costs, the less is available for mortgage payments, regardless of how much overtime you earn.

Some lenders have a more generous approach and may not stress test overtime income separately from basic salary. Instead, they add the accepted overtime to your basic salary and stress test the combined figure as a single income. This approach generally results in a higher maximum borrowing amount.

A mortgage broker can run affordability calculations across multiple lenders to show you exactly how much each one would lend based on your specific income makeup, including overtime. This comparison can reveal significant differences between lenders and help you find the one that offers the best outcome for your situation.

Tips for a Successful Overtime Income Remortgage

Securing the best remortgage deal when overtime forms a key part of your income requires careful preparation and the right strategy. Here are some practical tips to help ensure your application goes smoothly.

Start gathering documentation early. Begin collecting payslips, P60s and other evidence at least three months before you plan to apply. This gives you time to identify any gaps or issues and address them before they become a problem during the application process.

Check your payslips are clear. Make sure overtime is clearly broken out on your payslips as a separate line item. If it is bundled together with basic pay or other allowances, ask your payroll department to itemise it separately. Lenders need to see precisely how much of your income comes from overtime.

Maintain your overtime levels. If possible, try to keep your overtime consistent in the months leading up to and during your application. A sudden drop in overtime during the application process can raise questions and potentially delay or jeopardise your approval.

Be realistic about what lenders will count. Not all of your overtime may be included in the affordability assessment. Having realistic expectations about how much you can borrow prevents disappointment and allows you to plan accordingly. A broker can give you a preliminary idea of what different lenders would offer.

Consider the whole picture. Overtime income is just one piece of the puzzle. Your credit score, loan-to-value ratio, existing debts and employment stability all play important roles. Strengthening these other areas can help compensate if a lender takes a conservative view of your overtime.

Use a mortgage broker. This is one area where a broker's expertise can really add value. They know exactly which lenders treat overtime most favourably and can match your specific circumstances to the best available products. This can save you time, avoid rejected applications and potentially save you money through access to better deals.

Plan for the future. When choosing a remortgage product, think about what would happen if your overtime reduced or stopped. Make sure your mortgage would still be affordable on your basic salary alone, or at least that you have savings to cover any shortfall. This protects you against unexpected changes in your working pattern.