Sustainable Income

Mortgages with and without Mortgage Indemnity Guarantee (MIG)

Where the requested borrowing is >80% LTV the Society will usually require to take Mortgage Indemnity Guarantee (MIG) insurance, except for the Professional Mortgage. Due to the need to articulate a clear policy to the insurer there are clear calculations employed to determine and evidence an applicant’s sustainable income.

If the required sum is =<80% LTV there is not the requirement to be as prescriptive and the Society may adopt a more flexible approach, while at the same time ensuring it remains within its risk appetite and responsible lending policy.

The table opposite details the differing requirements for cases with and without MIG.

Sustainable Income

Mortgages with MIG (Over 80% LTV)

Mortgages without MIG (Under 80% LTV)

Employed applicants

For employed applicants, the Society may use a combination of earned income (including allowances) and investment income to determine what the applicant’s sustainable income will be in the foreseeable future. The following rules regarding additional employment-related income apply:

The Society will primarily assess on the same basis as for MIG, however the underwriter may adopt a degree of flexibility in the calculation on condition that sustainability can be evidenced, with an appropriate rationale provided.

- Overtime may be included up to a maximum of 25% of gross basic annual salary;

- Commission may be included up to a maximum of 25% of gross basic annual salary;

- Bonuses may be included up to a maximum of 25% of gross basic annual salary;

- The sum of all ‘additional employment-related income’ (such as overtime, bonuses, commission, rent allowances, shift allowances, should not exceed 50% of the gross basic annual salary).

Self-employed applicants

For sole trader/partner the average share of the last 3 years’ net trading profit. Where the applicant has only a 2-year track record, an estimate/projection for the coming year may be used in conjunction with the 2 previous years as long as:

For self-employed and company director applicants, the calculation of sustainable income will be assessed by the Mortgage Underwriter, having reference to at least one year of financial history (evidenced by either final accounts or an accountant’s certificate) and a projection for the coming year. The type of business in which the applicant is employed is likely to have a strong bearing on future sustainability of income.

1. Annual turnover is level or progressively rising

2. Net profit per the accounts (and share of net profit) is level or progressively rising

3. The applicant’s drawings do not exceed the share of net profit in any accounting period.

Company Directors

For Directors of a limited company the average salary/dividend for the last 3 years. Where the company has only a 2-year track record, an estimate/projection for the coming year may be used in conjunction with the 2 previous years as long as:

See above

1. Annual turnover is level or progressively rising

2. Net profit per the accounts is level or progressively rising

3. Salary plus gross dividends are level or progressively rising.

FOR INTERMEDIARY USE ONLY

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