How lenders count variable pay: haircuts and averages

Basic salary is easy — it’s contractual, so lenders take 100% of it. Everything variable gets two treatments applied: an averaging period (to smooth the ups and downs) and a haircut (to discount the risk it doesn’t continue). The typical shapes by income type:

The maths bites hard because the haircut applies to real money. Someone on a £40,000 basic earning £60,000 in commission is a £100,000 earner to themselves — but at a 50%-commission lender they’re assessed on £70,000, while a 100% lender sees the full £100,000. At around 4.5× income, that single policy difference is £135,000 of borrowing. Same person, same payslips. Before setting a budget, get the realistic figure with your variable pay properly modelled — our how much can I borrow guide covers the framework this plugs into.

Guaranteed vs performance-related: the split that decides your percentage

The single biggest driver of how much gets counted is whether the money is promised or earned. Which?’s lender analysis makes the split concrete: of 60 lenders, 38 accept 100% of guaranteed annual bonuses — but for performance-related bonuses only 17 accept 100%, while 32 cap it at half. Underwriters’ logic is simple: a contractually guaranteed bonus is nearly salary; a target-driven one might halve in a bad year, so they build the bad year in for you.

Since genuinely guaranteed bonuses are rare, most applicants live in performance-related territory — where consistency becomes your currency. Two or three years of bonuses at similar or rising levels reads as dependable and unlocks the 100% lenders; a single spectacular year reads as an anomaly and gets averaged down or set aside. The same logic scales down to overtime and shift allowances: regular and evidenced beats large and lumpy, every time.

The averaging-window game: why your income’s shape picks your lender

Here’s the subtlety that separates a good placement from an expensive one. Lenders average over different windows — some use your last three months, others one or two full years — and which window flatters you depends entirely on your income’s recent shape:

Neither window is “generous” in the abstract — each rescues one income shape and punishes the other. This is why the routing decision needs to happen before the application, made by someone who knows each lender’s window, haircut and cross-check policy. It’s also why estimates can shift at underwriting if the case was aimed casually — a growing source of complaints to the Financial Ombudsman in 2025–26 — so get the affordability calculation, and the lender’s variable-income formula, in writing from your broker before you offer on anything.

Salary caps and the quiet rules

Beyond haircuts and windows, four lesser-known policies regularly surprise variable earners:

• Salary caps on variable income. Some lenders won’t count commission or bonus beyond a set percentage of your basic — 50%, 75% or 100%. On a £25,000 basic with £35,000 of commission, a 100%-of-salary cap means £10,000 of your real income simply vanishes from the assessment. Commission-heavy, low-basic roles feel this hardest — lender selection around caps matters as much as around percentages.
• The “lower of” conventions. Declining bonuses? Most lenders use the latest (lower) year, not the average. Recent payslips outrunning your P60? Several use whichever figure is lower. Prudence always rounds down — build that into your expectations.
• Stock isn’t salary. RSUs and share awards on a vesting schedule generally can’t be counted as standard income for mainstream residential mortgages — though a bonus paid into your pension or share scheme (rather than as cash) can often still count. High earners with heavy stock compensation are private-bank and specialist territory.
• New job, no history. Variable income needs a track record, so a job move resets the clock — some lenders want a full year before counting commission at all, others take a view sooner on a strong contract. If you’ve recently moved, our new job mortgage guide covers how lenders handle the gap (and note a signing bonus won’t count regardless — it’s one-off by definition).

The evidence pack that unlocks the higher percentages

Generous treatment is conditional on proof. The standard pack: three to six months of payslips (four quarters’ worth for quarterly pay), your last two P60s — the cross-check document that validates recent months as sustainable rather than a spike — bank statements showing the income landing, and where it strengthens the case, an employer’s letter or the commission-scheme document confirming the structure is ongoing. The pattern across lenders is consistent: the more sustainability you can evidence, the higher the percentage you’re offered — two years of P60s backing your run-rate is frequently the literal difference between a 50% and a 100% assessment. Assemble the pack before applying, and get a decision in principle keyed with your variable income properly declared, so the figure you house-hunt with is the figure underwriting will honour.

Mostly — or entirely — commission-based?

A small basic with the real money in commission (recruitment, estate agency, car sales, FX, financial advice) doesn’t block a mortgage, but it narrows the field: you’re leaning on the lenders without punishing salary caps, and most will want at least 12 months in the role — ideally a fully evidenced tax year — before counting the commission line confidently. The compensation is that specialist and commission-friendly lenders genuinely exist, including some taking 100% with the right evidence and trend. Worth knowing the boundary lines too: if you’re paid via your own limited company or day rate rather than PAYE, you’re in different criteria altogether — our contractor and self-employed guides cover those routes, and the distinction matters because the evidence rules and lender pools barely overlap.

Maximising what gets counted: the playbook

1. Map your own income shape first — rising, steady, lumpy, seasonal — because it dictates whether short-window or long-window lenders flatter you.
2. Time the application around your evidence, not the other way round: applying one month after bonus season with a fresh P60 beats applying one month before it.
3. Don’t switch jobs mid-plan if you can help it — a move resets the variable-income clock even at a higher package.
4. Gather the scheme paperwork — commission structure documents and employer confirmation lift underwriter confidence, and confidence lifts percentages.
5. Keep the rest of the file boring: variable income already asks the underwriter for a judgement call; don’t stack new credit or heavy commitments on top (see how commitments cut borrowing in our affordability guide).
6. Route, don’t guess. If an application on mis-matched criteria gets declined on affordability, the recovery cost is real — our declined mortgage guide covers it, but the better plan is not needing it.

Bonus & commission mortgages: FAQs

Last updated: July 2026. Lender criteria verified at the time of writing and subject to change.