Ask five different brokers or lenders for their definition of complex income and you are likely to receive a whole range of different answers.
So, rather than offer our own definition, it might be useful to demonstrate complex income in action.
Here are three different examples of real-life cases from clients working in the same profession, all of whom have had complex income circumstances that required an underwriter to assess their affordability and the sustainability of their income.
The self-employed solicitor
Hannah, a successful solicitor, ran her own department in the same law firm for more than four years, before starting her own firm where she was able to take her clients with her.
As well as starting a business, Hannah was also going through a divorce and consequently she wanted to buy a new home just three months into her new venture.
On the surface, this situation appears complex but, to an experienced underwriter, the only difference to Hannah’s day was the firm she was working for as she had the same job and same clients as well as the potential to earn a better income.
This gave the underwriter the comfort to base Hannah’s new income on an accountant’s confirmation of the previous billing of the migrating clients and the likelihood of this continuing given their track record together.
The successful solicitor borrowing beyond retirement
Brian was a 70-year senior partner at a firm of solicitors who wanted to buy a home in the Lake District as he neared retirement.
He planned to work until 85 and wanted a 15-year term.
His application also included a significant amount of commission income as his firm remunerated its partners based on performance.
Given the nature of his profession an underwriter could consider working to 85 as a plausible option and there was also evidence that he had sufficient, stable income should he decide to retire earlier than anticipated.
The solicitor paid by the hour
Luke earned an hourly rate, which is not uncommon for a solicitor, of £250 per hour. He wanted a pound for pound remortgage.
Underwriters were able to consider his income on the basis of a day rate contractor, establishing a daily rate x 5 and then x 46 to give an annual income.
These three examples demonstrate that, even in the same profession, different stages of different clients’ careers can present different complexities for a lender to consider.
They must strike a balance between the borrower’s requirements and maintaining a responsible and sustainable approach to lending.