The 50% Haircut: Why Banks Slash Your Bonus (And How to Fix It)

When you apply for a mortgage, you are not talking to a person; you are fighting an algorithm.

Standard online calculators give you a false sense of security. They take your total annual income, multiply it by 4.5, and give you a massive maximum loan figure.

But that is not how a real underwriter works.

The Variable Income Trap

Banks love predictable, guaranteed base salaries. They hate risk. If a chunk of your income comes from overtime, monthly commissions, or end-of-year bonuses, the bank assumes that money could vanish tomorrow if the economy turns.

To protect themselves, underwriters apply a "Haircut."

While every lender has slightly different internal rules, a standard high-street bank will completely ignore 50% of your variable income.

• Make £5,000 a year in overtime? The bank only sees £2,500.
• Get a £10,000 annual bonus? The bank only counts £5,000.

When that reduced number is multiplied by your income cap, it can obliterate your maximum borrowing limit and leave you severely short on moving day.

The Credit Card Multiplier Effect

It gets worse. Banks don't just look at your monthly minimum payment; they look at your total outstanding balances. Every pound of debt you hold reduces your borrowing capacity exponentially.

Carrying a £2,000 balance on a credit card doesn't just reduce your mortgage by £2,000—because of Debt-to-Income (DTI) stress testing, it can wipe out £8,000 to £10,000 of your total borrowing power.

Your Next Move

Do not walk into a bank blind. You need to stress-test your exact numbers using the same math the underwriters use.

Your Action Step: Open your FirstRung dashboard and go to the Daily Affordability tab. Adjust your incomes to separate your Base Salary from your Bonus/Overtime. Then, drop your credit card balance to £0. Watch how violently your Maximum Borrowing Cap jumps in real time when you clear that debt.