Lending criteria for income | Barclays Intermediaries

UK Armed Forces Personnel who are currently working in the UK or overseas and wish to buy/re-mortgage a property to let, that is intended to be their main residence in the future or on their eventual return to the UK. It is acceptable to let the mortgage property on an Assured Shorthold Tenancy basis.

Service Personnel may be offered a Forces Help To Buy Loan (FHTB), which replaces the Long Service Advance of Pay (LSAP). This is usually a 10-year interest-free loan of up to £25,000. This may be used as a deposit to purchase a property but should be treated as a loan commitment in the normal way, with the annual monthly payments being deducted from the applicant’s income.

Please see the Help to Buy – Forces Help to Buy policy section for further details.

Documentation

• Monthly Bonus - 3 latest payslips which evidence monthly bonus amounts they have received ( Bonus must appear on 3 out of 3 monthly payslips and at least 1out of 5 weekly payslips or 3 out of 13 weekly payslips)
• Monthly Overtime or Commission -3 latest payslips which evidence at least 1 amount

P60 will be needed where more than 50% of the most recent 3 monthly average is needed to meet affordability.

Monthly Bonus

Identify if monthly* bonus is on the most recent 3 month’s* payslips

We'll never use less than 50% of the most recent 3 months' average

Average the total monthly bonus amounts from the last 3 month’s* payslips and use the same payslips to compare the annualised figure against the P60

You'll need to deduct the salary, allowances and any bonus payments that are less frequent than monthly (or more) when reviewing a P60 and calculating the monthly bonus

The remaining figure should then be divided by 12 to show the monthly average from the P60

Take the lower of the following 2 figures (unless the minimum 50% applies)

• 100% of the 3 months' average
• 100% of the latest P60 monthly average

*If frequency of pay is not monthly (e.g. bi weekly / 4 weekly / weekly), Please see weekly, 2-weekly or 4-weekly section below.

Annual Bonus

You'll need to use the gross (pre-tax) bonus figure when calculating your customer's bonuses.

• Bonuses paid less frequently than monthly are classed as annual
• Bonuses paid monthly or more frequently are classed as monthly*

* See Monthly Bonus section for further details

Note - Your customer is not required to have been with the same employer for 2 years, however, the most recent annual bonus must have been paid by their current employer and, in all cases, must have been paid within the last 12 months. An annual bonus can be considered where it has only been paid in the most recent year.

Payslips

The number of payslips required is dependent on the frequency of the bonus. We need evidence of their annual bonus over the last 2 years.

• If your customer receives their bonus Quarterly then we need 8 payslips which evidence the bonus payment
• If your customer receives their bonus Half Yearly then we need 4 payslips which evidence the bonus payment
• If your customer receives their bonus Annually then we need 2 payslips which evidence the bonus payment

Note - You can use the payslips to show annual bonuses over the last 2 years (We don’t need P60s to validate, and we require no additional calculations).

P60s

Where your customer can’t provide the required payslips, we need to confirm the annual bonus is sustainable using the last 2 years P60s.

P60’s are only acceptable where the customer is not also in receipt of regular bonus, overtime or commission.

Obtain the P60s to confirm bonus over the last 2 years.

Calculate the annual bonus figure for both years

If the latest years bonus figure is lower than the previous years, you can only use the latest years figure. If it is higher than the previous years you can use an average of the two years

Calculate Overtime or commission

Identify if monthly* overtime/commission is showing on at least 1 of the most recent 3 month’s* payslips

Average the total monthly* overtime/commission amounts from the last 3 month’s* payslips and use the same payslips to compare the annualised figure against the P60

You'll need to deduct the salary, allowances and any bonus payments that are less frequent than monthly (or more) when reviewing a P60 and calculating the monthly overtime/commission

The remaining figure should then be divided by 12 to show the monthly average from the P60

Take the lower of the following 2 figures (unless the minimum 50% applies)

• 100% of the 3 months' average
• 100% of the latest P60 monthly average

**If frequency of pay is not monthly (e.g. bi weekly / 4 weekly / weekly), see ‘weekly, 2-weekly or 4-weekly’ section below

Examples

Example 1 (evidenced on 3 consecutive most recent payslips)

Basic = £20,000 - Monthly bonus (average over last 3 months) = £1,000 - P60 Total income = £23,000

Bonus amount (P60 value) = £3,000 (divided by 12 = £250 per month)

Monthly bonus Figure to use = £500 per month

Decision - As the P60 monthly average value after basic salary is deducted is less than 50% of the latest 3 payslips, the figure added to application is £500 per month (50% current average monthly bonus = £1,000 x 50%)

Example 2 (evidenced on at least 1 out of 3 recent payslips)

Basic annual income = £20,000 - Monthly overtime (average over last 3 months) = £1,000 per month - P60 Total annual income = £29,000

Less Basic annual income = £20,000

Overtime amount (P60 average value) = £9,000 (divided by 12 = £750 per month)

Overtime Figure to use = £750 per month

Decision - As the P60 monthly average value after basic salary is deducted is lower than 100% of the average of the latest 3 payslips, the figure added to MAX is £750 per month (use the lower of the 2 averages)

Example 3 (evidenced on at least 1 out of 3 recent payslips)

Basic annual income = £20,000 - Commission (average over last 3 months) = £1,000 per month - P60 Total annual income = £38,000 

Less Basic annual income = £20,000

Commission amount (P60 average value) = £18,000 (divided by 12 = £1,500 per month)

Commission Figure to use = £1,000

Decision - As the P60 monthly average value after basic salary is deducted is higher than 100% of average of the latest 3 payslips, the figure added to MAX is £1,000 per month (use the lower of the 2 averages)

Non-cash compensation

Customers may choose to have their bonus payment paid into alternate places instead of having it paid cash. E.g. their pension or share scheme etc. This can still be used toward affordability when assessing a mortgage application.

Where shares are a feature of an applicant’s total income awarded by their employer (e.g. in the form of restricted stock units (RSU’s) that are subject to a vesting schedule) this cannot be considered standard income in the affordability assessment for retail mortgage applications

Criteria and Packaging Guide [PDF, 790KB].

You should make us aware if any portion of the customer’s income or source of wealth is cryptoasset-based or consists of investments in a crypto-related software business (e.g. Blockchain/DLT Tech firms).

Cryptoassets can include cryptocurrencies (such as Bitcoin), utility tokens (unregulated cryptoassets usually issued as part of an ICO/ITO), asset tokens including ‘stable coins’ (asset-backed coins with a value pegged to a physical asset of some kind) and security tokens. 

Applications of this nature will be reviewed on a case-by-case basis.

Our policy on applicants who are contractors depends on if they are working on an employed or self-employed basis.

Applicants employed in professional roles where contracts are provided on a fixed term basis, but each contract rolls to the next placement and so the overarching employment does not change (i.e. Junior Doctors, Teachers, Junior Solicitors), should be keyed as employed. These roles will all receive a salary.

All contractors

• There can be no more than a 6-week gap between contracts
• Evidence of 12 months’ contracts (a minimum of 2 contracts must be provided if latest contract covers < 12 months) is required – the only exception is where the applicant has recently moved from employee to contractor and provides services to their previous employer: In this case, we require confirmation that the client employed the applicant for at least 3 years before they became a contractor along with a copy of the service contract showing terms of remuneration, duration of contract and conditions of cancellation or termination
• There must be 3 months remaining on their current contract or alternatively be able to provide evidence of the next one

Umbrella, Agency or Fixed Term contractors

The following policy applies to contract workers who are employed on a PAYE basis (e.g. via an umbrella company or agency): Income is calculated on an employed basis using 3 months’ (or equivalent) pay slips, and taking an average where necessary, any holiday pay received is included within the average. Where the customer has any form of variable pay or bonus this should be calculated using employed policy.

Applications for contractors in occupations such as professional sport will be assessed on a case-by-case basis to check for sustainability and plausibility. By recording these types of customer on the application as ‘Employed - Fixed Term Contract’ this will ensure these checks can take place.

Self-employed contractors

For contract workers operating on a self-employed basis affordability calculations will depend on how their business is structured. Where ALL of the following additional requirements are met a daily rate calculation may be applied

• The firm is a limited company
• The firm has only one contract in place
• The firm does not employ anyone (other than the applicant themselves)
• The applicant is 100% owner of the limited company (sole shareholder)
• The applicant’s current contract equates to at least £218 per day or £50,000 per year (gross)
• Mortgage Loan-to-Value is ≤ 85%

Daily-rate calculation

To calculate gross income, you will

• Identify the lower of the following – Average Daily Rate of Pay (excl. VAT) from the 2 most recent contracts OR the most recent Daily Rate of Pay (excl. VAT) OR the actual income shown on the bank statements;
• then multiple by 5 and;
• then multiple by 46 to give the annual figure

If the contract expresses pay as an hourly-rate, then the applicant’s income should be calculated on the assumption there are a maximum of 40 working hours per week, unless the contract or the applicant specifies a lower number of hours. The resulting weekly amount should then be multiplied by 46 working weeks to arrive at the gross annual income for affordability purposes.

Additional commitments (where daily-rate is used) - When the ‘daily-rate calculation’ is being used; credit commitments for which the limited company is liable/responsible (e.g. business loans, including ‘bounce back loans’) should be recorded within the application and considered as part of the overall affordability assessment. On the application, the monthly payment should be entered as shown on the business bank statements, the outstanding balance detailed as £1 and the remaining term as 1y 0m.

The following additional documents are required if the ‘daily-rate calculation’ is being applied

• Latest 3 full month’s consecutive personal bank statements confirming receipt of income
• Latest 3 full month’s consecutive business bank statements confirming receipt of income

All contractors using the daily rate should be recorded on the application as ‘Employed - Fixed Term Contract’.

Contractors not employed via an umbrella or agency or that do not meet the daily rate criteria must document income following our self-employed policy. Please refer to our self-employed and allowable income sections for further details.

The monthly amount to be paid towards the following commitments (including those originated and/or operated outside of the UK) must be deducted from the applicant/s net income to prove affordability:

• Hire Purchase Agreements including Mail Order Payments, Bank Loans, Finance Loans, Payday Loan Advances (full amount outstanding applies) or Second Charges
• Future Commitments - commitments that become due during the term of the mortgage must be included in the affordability assessment. This includes deferred credit payments and delayed payments and should be entered in the 'deferred credit' dropdown box on the financial commitments page on the mortgage application system
• In addition to being included in the Special Scheme information in Borrowing Requirements, all Shared Equity loan balances, including England & Wales Help to Buy Equity loans, must be recorded within Financial Commitments under 'Shared Equity' if interest is due within the mortgage term. The system will then take 3% per annum of the outstanding balance of the loan as a commitment for affordability. Please note: only in circumstances where no interest is due on the shared equity loan at any stage within the mortgage term (such as the Scotland HTB equity scheme) or the equity loan is being paid off in full as part of the application, should the equity loan not be recorded as a Financial Commitment If repaying part of an interest charging equity loan, these should be input as two Shared Equity commitments – one for the Shared Equity loan balance to be repaid (marked ‘to be repaid’) and one for the Shared Equity loan balance to remain (marked ‘not to be repaid’)
• Second or subsequent properties: commitments in the form of mortgage payments on second properties, other than those on properties confirmed as Buy to Let or Permission to Let properties, will automatically be applied on a standard repayment basis over the outstanding mortgage term at the current affordability rate or current payment amount, whichever is the higher when assessing affordability. Where a credit limit applies to the existing mortgage borrowing, then it is this figure, including any undrawn monies, that should be used when assessing affordability. In addition, a fixed-value commitment for each additional mortgaged residential property held is applied by the system to cover all other costs – this only applies to other residential properties, i.e. second residential homes, but not any property confirmed as being on a Buy to Let or Permission to Let basis.
• Buy to let/ Permission to let properties: Commitments in the form of contractual monthly mortgage payments on background buy to let/ permission to let properties will be applied automatically
• The running costs of any unencumbered second property need to be included in the affordability assessment – please manually enter figures on the Commitments screen. This should include
  • Gas and electricity
  • Water
  • House insurance
  • Council tax
  • Ground rent/service charge
• Guarantors: If a customer is a guarantor for any mortgage, property rental agreement, secured loan or any other loans then the monthly payment of such commitments is applied in the affordability assessment in line with the above requirements
• Regular Pension Payments – including any additional voluntary payments (such as AVCs) being paid regularly from income. One-off contributions – for example from an annual bonus – can be disregarded (pension contributions will be calculated automatically as part of the affordability assessment. They shouldn’t be input as part of the application process)
• The cost of any bridging loan
• Court orders relating to maintenance payments or judgement debts
• Child Support Agency (CSA) payments
• School fees and child care costs
• Current monthly student loan payment
• Liability for ground rent, service and maintenance charges under any leasehold, commonhold or other agreement – including any equity sharing agreements
• Credit card debts (at the rate of 3% of the debt outstanding) including store cards
• Overdraft debts (at the rate of 3% of the drawn balance at the time of application)
• Council tax
• Shared equity loan or shared ownership rent

Other considerations

• Any loan/fixed repayment debt with less than 6 months to run can be ignored, provided that the total balance of loans in this category does not exceed £1,000
• The total amount outstanding against any ‘payday’ loan advance must be deducted from the applicant’s net income when assessing affordability
• Any commitment which is to be repaid from the new proposed mortgage advance can be ignored provided a specific offer condition is made to this effect
• Any unpaid tax evidenced from the HMRC tax overview document must be treated as a commitment in the period it falls due
• Where an applicant is in receipt of benefit income, please ensure any associated regular costs incurred by the customer – for which this benefit income is intended – is included as a commitment. For example, if the applicant is claiming Personal Independence Payments (PIP), it may be appropriate to record any regular care costs.
  

Notes: If any undeclared commitment is identified this will generate a remodelling of the application and potentially a change in lending decision.

You’ll need to have been in continuous employment for the last three months with no gaps. This doesn’t have to be with the same employer, but if you’ve been with your current employer less than three months, your case will be assessed by the team. They might ask you to provide additional information.

For details of documentary requirements for employed income, please see Criteria and Packaging Guide [PDF, 791KB].

Second Job

100% of income will be accepted if, sustainability is evidenced.

Employed by relative

Where an applicant works for a “relative or partner”* who owns more than 20% of the company in which the applicant is employed by, we will treat them as employed, however we must take additional steps to confirm sustainability of income. The last 3 months payslips, corresponding bank statements and latest P60 must be provided. Where there is subsequently any concern with regards to sustainability of income required, underwriters should request trading accounts for the company for the last 2 years, or where employed by an LLP, a letter from the Finance Director/Senior Partner confirming income.

*”Relative or Partner” is defined as “The borrower’s spouse or civil partner; a person (whether or not of the opposite sex) whose relationship with the borrower has the characteristics of the relationship between husband and wife; or the borrower’s parent, brother, sister, child (including step child), grandparent or grandchild.’

* The income components considered when deciding if the minimum income threshold is met are: Basic income + sustainable allowances + self-employed income.

** Debt to Income ratio is calculated as monthly credit commitments after completion as a percentage of gross monthly income.

Looking for enhanced affordability?

You may wish to visit Kensington Mortgages, one of the UK’s leading specialist lenders and a subsidiary of Barclays Bank UK PLC. Kensington offer more flexible lending criteria to help people who may not meet typical lending requirements. Learn more

When an applicant is currently on, or is about to start, a period of reduced income for a defined period of time (e.g. maternity paternity, adoption leave), we’ll base the affordability and overall lending assessment on their ‘return to work’ income details.

To verify their income, please provide all the following

• Their latest payslip
  
• Their last payslip before the period of reduced income, if they have already started a period of reduced income
• Their return-to-work details. As a minimum this must include

                       •       Intended return date
                       •       Proposed basic income on return
                       •       If the applicant is working hourly, the proposed number of hours to be worked on their return
                       •       If the applicant intends to amend their working hours, confirmation that their employer has approved this

Applicants are classed as self-employed when they hold over a 20% share in a company.

For details of documentary requirements for self-employed, please see Criteria and Packaging Guide [PDF, 790KB].

PAT (Profit after tax)

Profit, after any applicable corporation tax has been deducted, can be considered towards the affordability assessment, in addition to the applicant’s director’s salary where applicable, where the following requirements are met:

• The Loan amount (less capitalised product fees) is Over or equal to £1m. (Where the loan amount is below £1m the affordability assessment will be based on the applicant’s director’s salary and dividends only. PAT cannot be taken into consideration.
• The borrower(s) collectively own greater than 50% of the company’s shares.

The maximum amount of Limited Company PAT that can be considered as part of the overall affordability assessment is the lower of:

• 50% of the three-year average Limited Company PAT, or
• 50% of the Limited Company PAT for the latest trading year.

The amount of PAT used will be determined by the percentage shareholding of the applicant. E.g. where the borrower is a 70% shareholder a maximum 35% of PAT can be considered (50% of 70%)

The Maximum amount of PAT used towards affordability cannot exceed 5x the average {Salary + Dividends} paid to the applicant(s) over 2 most recent years, as evidenced by the 2 latest tax calculations.

Where more than 25% of the company’s trading income is received in a currency other than GBP the maximum amount of PAT that can be used towards affordability reduces to 40% (further reduced where the applicants’ combined shareholding is less than 100%, as described above). 

Applicants that have received a loan from the company that remains outstanding at the point of application would require the amount they are repaying each month to be captured as a commitment within the affordability assessment as 1/12 of the outstanding amount (as evidenced by an accountant’s letter) Detail needed for accountants' letter can be found in ‘Useful documents’ under ‘Limited Company Profit After Tax’

What to do if your client only has 1 year trading history?

You may wish to visit Kensington Mortgages, one of the UK’s leading specialist lenders and a subsidiary of Barclays Bank UK PLC. Kensington offer more flexible lending criteria to help people who may not meet typical lending requirements. Learn more.