Adjustments Lenders will make to your Income
When assessing your loan application lenders need to decide how much money they can lend you. They have a number of legal obligations they need to satisfy when they do this. These legal obligations are generally referred to as Responsible Lending obligations.
When evaluating your Borrowing capacity lenders will assess your income, your expenses and your commitments.
You should list here all your income sources. It is important that you complete this section thinking of any future changes in your income, including pay raises, work breaks, investment income changes, rental income (existing or of the property you are going to buy), etc.
Lender’s will not consider all income sources equally. They tend to favour regular salary payments over any other income source and therefore they will make adjustments/reductions to income from other sources. Different lenders might have different considerations and reductions, the following are general adjustments and they should serve as a guide. When completing your future income please consider applying these lender’s adjustments for a more accurate calculation of borrowing capacity.
- Base income: Lenders will accept 100% of your base income in their assessment.
- Overtime: Some lenders will accept 100% of your overtime income if you can show that is regular and ongoing. Other more conservative lenders will only accept 50% of overtime income in their assessment.
- Bonuses & Commission: Bonuses are often irregular and so lenders will normally ask for 1 to 2 years history of regular and ongoing bonuses, otherwise they might apply a discount rate or not accept it at all as part of their assessment.
- Tax-free income: Family Tax Benefits A & B are normally accepted if your children are under 11 years of age. Other tax-free income is assessed on a case-by-case basis.
- Rent: Rental income from investment properties is accepted at a discounted rate of 75-80% to allow for costs such as property management, repairs and council rates.
- Child Maintenance: Lenders will consider child maintenance if the child is under 13 years of age, the payment is registered with the Child Support Agency and it has been received for at least six months.