Remortgage With Variable Income

Understanding Variable Income for Mortgage Purposes

Variable income refers to any earnings that are not fixed at the same amount each month. This covers a wide range of working arrangements and payment structures that are common across the UK job market.

Examples of variable income include:

• Irregular hours or shift work - Where your weekly hours and therefore pay fluctuate from one period to the next
• Seasonal employment - Where you work more during certain times of year and less during others
• Zero-hours contracts - Where there is no guarantee of a set number of hours each week
• Multiple part-time jobs - Where your combined income may vary depending on available shifts
• Freelance or gig economy work - Where income depends on the number and value of projects secured
• Commission-based roles - Where a portion of your pay depends on sales performance
• Overtime-dependent earnings - Where regular overtime significantly boosts your basic salary

Lenders recognise that variable income does not mean unreliable income. Many people with variable earnings actually have strong financial profiles and are perfectly capable of sustaining mortgage repayments. The challenge for lenders is determining a reliable income figure to base their affordability calculations on.

The way lenders treat variable income has improved significantly in recent years. The Mortgage Market Review encouraged a more nuanced approach to income assessment, and many lenders have developed sophisticated methods for evaluating non-standard income patterns.

Understanding how your specific type of variable income will be assessed is the first step towards a successful remortgage application. Each type of variable income has its own considerations, and the approach that works best will depend on your individual circumstances.

How Lenders Calculate Variable Income

When you apply to remortgage with variable income, lenders need to establish a sustainable income figure that they can use for affordability calculations. The method they use depends on the type of variable income and their own internal policies.

The most common approach is to average your income over a period of time, typically the last 12 months, though some lenders may look at six months or up to three years. This smooths out any monthly fluctuations and gives a more representative picture of your earning capacity.

Some lenders will use the lower of the average or the most recent figure, which can work against you if you have had a particularly quiet recent period. Others may use the higher figure if your income is trending upwards, which can work in your favour.

For borrowers with seasonal income patterns, lenders may look at year-on-year comparisons to identify consistent trends. If your income follows a predictable seasonal pattern, demonstrating this with clear records can help the lender feel more confident about your application.

Evidence is crucial when it comes to variable income. Lenders will typically want to see:

• Payslips - Usually the last three to six months, though some may ask for 12 months to capture the full range of your earnings
• Bank statements - Three to six months of statements showing income credits and regular expenditure patterns
• P60 - Your annual tax summary from your employer, showing total earnings for the tax year
• Employment contract - Detailing your basic salary, contracted hours and any variable pay elements
• Employer's letter - Confirming your role, length of service, typical working pattern and expected future earnings

Having comprehensive and well-organised documentation can make a significant difference to how quickly and smoothly your application progresses. The more clearly you can demonstrate your income pattern, the more confident the lender will be in approving your application.

Strategies for Strengthening a Variable Income Application

If your income varies from month to month, there are several strategies you can employ to present the strongest possible case to lenders and improve your chances of securing a competitive remortgage deal.

Time your application carefully. If your income has seasonal peaks, consider applying during or just after your busiest period when your recent payslips show higher earnings. While lenders will look at the bigger picture, strong recent earnings can help set a positive tone for the assessment.

Gather extensive documentation. Go beyond the minimum requirements. If a lender asks for three months of payslips, provide six or twelve months to show a complete picture of your earnings. The more evidence you can present, the easier it is for the lender to assess your sustainable income level.

Demonstrate consistency over time. Even if your monthly income varies, showing that your annual income has been consistent or growing year on year is reassuring to lenders. P60s from multiple years can be particularly powerful evidence of long-term earning stability.

Reduce your outgoings. The lower your monthly commitments, the easier it is to demonstrate affordability. Pay off credit cards and loans where possible, and avoid taking on new credit in the months before your application.

Maintain a savings buffer. Having savings that could cover several months of mortgage payments demonstrates financial resilience. It shows the lender that even during a lean month, you have the resources to maintain your payments without difficulty.

Get a letter from your employer. An employer's letter confirming your role, typical hours, average earnings and expected future work pattern can provide additional reassurance. Some employers will also confirm that variable hours or overtime are expected to continue at similar levels.

Consider using a broker. A mortgage broker who specialises in non-standard income applications will know which lenders are most flexible with variable income and how to present your case in the most favourable light. They can save you time and increase your chances of approval.

Variable Income From Multiple Jobs

An increasing number of UK workers hold more than one job simultaneously. Whether you combine two part-time roles, supplement a main job with freelance work, or juggle several casual positions, lenders can potentially consider income from multiple sources.

When you have multiple employed positions, most lenders will consider the combined income from all roles, provided you can evidence each one with payslips, contracts and P60s. The key requirement is that the jobs are sustainable and not in conflict with each other in terms of hours.

If one job is permanent and the other is casual, some lenders may only consider the permanent income as guaranteed and treat the casual income as variable. In these cases, the casual income may be averaged or only partially counted. Having a longer track record in the casual role improves the chances of it being fully considered.

For borrowers who combine employment with self-employment, the assessment becomes more complex. Lenders will typically want payslips for the employed income and tax returns for the self-employed element. A specialist broker is particularly valuable in these situations as different lenders have very different approaches to mixed income types.

When applying with income from multiple sources, it is essential to be completely transparent about your working arrangements. Lenders will check the hours you work across all roles to ensure they are sustainable and realistic. Claiming to work excessive hours across multiple jobs can raise red flags.

Keep in mind that some lenders have a limit on the number of income sources they will consider. If you have a particularly complex income structure, a broker can help identify which lenders are most flexible and how best to present your various income streams.

Common Challenges With Variable Income Remortgages

While remortgaging with variable income is certainly achievable, there are some common challenges you should be aware of so you can prepare for them in advance.

Income volatility. If your income has varied significantly from month to month or year to year, lenders may take a conservative view and base their calculations on your lowest recent earnings rather than your average. This can reduce the amount you are able to borrow.

Lack of a guaranteed income. Without a fixed salary, some lenders may be reluctant to commit to higher loan amounts. They want assurance that you can maintain payments even during your quietest periods. Having evidence of consistent work patterns over an extended period helps address this concern.

Recent changes to your employment. If you have recently moved from a fixed salary to variable income, or changed employer, some lenders may want to see a longer track record before they can assess your new income pattern. Waiting six to twelve months after a change can open up more options.

Complex documentation. Variable income applications typically require more paperwork than straightforward salaried applications. Gathering payslips, bank statements, employment contracts and employer letters for multiple months or even years can be time-consuming. Starting the process early gives you time to collect everything you need.

Stress testing. Lenders must stress test your ability to afford payments at a higher interest rate. When your income is variable, this test can be harder to pass because the lender may use a lower income figure combined with a higher hypothetical interest rate.

Despite these challenges, the majority of borrowers with variable income who seek professional advice are able to find a suitable remortgage product. The market has become increasingly accommodating of non-standard income patterns, and specialist brokers know exactly which lenders to approach for different types of variable earnings.

Choosing the Right Remortgage Product With Variable Income

The type of remortgage product you choose can be particularly important when your income varies. Different products carry different levels of flexibility, which can be valuable if your cash flow fluctuates.

A fixed rate mortgage provides certainty about your monthly payments, which can be helpful for budgeting when your income is unpredictable. Knowing exactly what you need to pay each month makes it easier to plan around quieter periods and ensures you are never caught out by a rate increase.

A tracker or variable rate mortgage may offer a lower initial rate, but your payments could increase if the Bank of England base rate rises. This adds another layer of uncertainty to your finances, which may not be ideal if your income is already variable. However, if rates are stable or falling, a tracker can offer excellent value.

Consider products that offer overpayment facilities. Many mortgages allow you to overpay by up to 10 per cent of the outstanding balance each year without penalty. This means you can make larger payments during months when your income is higher and build up a buffer for leaner periods.

Some lenders also offer payment holidays, though these are typically only available after you have built up a sufficient overpayment buffer. A payment holiday can provide breathing room during a particularly quiet month, though interest will continue to accrue during the break.

An offset mortgage is another option worth considering if you have savings. By linking your savings to your mortgage, you only pay interest on the difference between your mortgage balance and your savings. This effectively gives you a higher return on your savings while reducing your mortgage costs, and you can access your savings if needed during a low income month.

When comparing products, pay close attention to the total cost over the deal period, not just the headline rate. A product with a slightly higher rate but no arrangement fee may work out cheaper overall than one with a lower rate but significant upfront costs, particularly if you are borrowing a smaller amount.