Commission & Variable Income: Stamp Duty Affordability

Commission income is treated differently from base salary in mortgage underwriting because it is variable — it may rise, fall, or disappear if you change roles or the market shifts. Lenders manage this uncertainty by requiring a documented history of commission earnings and applying averaging formulas to arrive at a sustainable income figure for affordability calculations.

The standard evidence required is typically your last two to three years of P60s (end-of-year tax summaries from your employer) plus recent payslips covering three to six months. Some lenders also request an employer reference confirming the nature and likelihood of continued commission payments. If you changed employer in the last two years and your previous commission history is unavailable through current payslips, you may need to provide P60s from your prior employer.

The key underwriting question lenders ask is whether the commission is likely to continue. If you are in a sector experiencing significant disruption or have recently been promoted into a new role with a different commission structure, lenders may apply additional scrutiny. Documenting why your commission is sustainable — for example, by showing consistent growth or a strong employer letter — can help.

From an SDLT planning perspective, the assessed income figure determines your maximum property price. A £10,000 difference in assessed commission at a 4.5x multiple translates to £45,000 in maximum property price — which can mean the difference between staying under the £300,000 FTB nil-rate threshold and crossing into a taxable band.

Guaranteed vs Variable Pay

The distinction between guaranteed and variable components of your pay package is fundamental to how lenders calculate your income. Base salary is almost universally counted in full — it is contracted, reliable, and evidenced clearly on every payslip. Variable components require more careful assessment.

Contractual commission: If your employment contract specifies a minimum commission payment or a guaranteed draw against commission, this portion may be treated as guaranteed and counted at 100%. Evidence the contract to your mortgage broker — this can meaningfully improve your assessed income.

Performance commission: The most common type — paid when you hit targets and variable in amount. Lenders average this over 2-3 years. If your commission is consistently earned (you have hit targets every year), lenders are more likely to count it at a higher percentage. If it is sporadic or declining, they will be more conservative.

Discretionary bonuses: The least certain component. Annual discretionary bonuses — those not guaranteed by contract and awarded at employer discretion — are typically counted at 50% or excluded by conservative lenders. Specialist lenders may count them at higher rates if you can show a consistent multi-year track record.

Commission Averaging Methods

The table below illustrates the four main averaging approaches using a base salary of £40,000 and commission of £20,000, £15,000, £25,000 in years 1, 2, and 3 respectively.

The range between conservative and generous assessment produces a £10,000 income difference — equivalent to a £45,000 swing in maximum mortgage capacity at 4.5x. For SDLT planning, this means your stamp duty bill could vary by over £2,000 depending solely on which lender you choose. Using a mortgage broker to match you with the lender whose assessment methodology best suits your commission history is valuable.

Interactive Calculator

Enter your base salary and last 3 years of commission to see how different lender methodologies affect your property budget and SDLT.

Income multiple: 4.5x. For illustrative purposes only — not financial advice.

While lenders assess commission and bonus income based on historical averages rather than the timing of your application, the timing of bonus receipt matters enormously for SDLT cash flow. Stamp duty is due within 14 days of property completion, and if your bonus typically lands in March but completion is scheduled for January, you face a cash flow gap.

Commission-heavy earners should model their SDLT obligation against their cash savings rather than their annual income. If your savings are primarily built from bonus payments that you receive once a year, timing your exchange of contracts to shortly before that payment arrives can reduce the bridging gap. Your solicitor will need cleared funds for SDLT on or before completion day.

Another consideration is the deposit timeline. If you have recently received a large bonus and placed it into savings, some lenders will require you to evidence where the funds came from — particularly if the amount is disproportionate to your apparent savings capacity. A clear paper trail from employer to bank account helps avoid delays.

For commission earners in higher-earning roles — financial services, senior sales, or technology — SDLT bills on properties above £500,000 can run to £15,000-£35,000. Planning the timing of these payments relative to bonus cycles is as important as the mortgage assessment itself.

Industry Examples

Commission and bonus structures vary significantly by industry. Understanding how lenders typically view your sector's commission pattern helps you approach the right lender and prepare appropriate documentation.

Frequently Asked Questions