The first line of the sum is where most of the arguments start. A payslip shows what the client earned; a lender counts what it believes the client will keep earning. Base salary from a permanent job is about as safe as income gets, so it counts in full almost everywhere. Everything else is trusted less, and lenders express that by counting only part of it. Brokers call this shading.
The usual suspects
| Income | Typical range counted | What moves it |
|---|---|---|
| Base salary (permanent) | 100% | Probation, a very new job |
| Overtime and shift penalties | 0% to 100% | Whether it's regular, how long it's been earned, essential-worker status |
| Casual income | Annualised over 46 to 52 weeks | Time in the job; how many weeks a year the lender assumes |
| Bonus | 0% to 100% | Two years of history; latest year, average or lower of the two |
| Commission | Often 80% or averaged | Length of history and how much it swings |
| Allowances | 0% to 100% | Fixed or variable; whether it's paid for costs actually incurred |
| Rental income | Usually 70% to 80% | Property type, location, short-term letting |
| Government payments | Varies widely | Which payment, and for family payments, the children's ages |
| Foreign income | Often heavily cut, or not at all | Currency and country |
Two lenders can each be perfectly reasonable and still land a long way apart. One counts all of a client's overtime because it has been steady for three years; another counts 80% of it as a matter of policy. One averages two years of bonus; another takes only the lower year. Play with the shading below to see how quickly it adds up.
Same income, two lenders
Assumes the extra income would be taxed at 32% (30% plus the 2% Medicare levy) and tested at 9% over 30 years. The percentages are typical of the market, not any one lender's policy.
Essential workers: the overtime exception
Many lenders count more of the overtime earned by nurses, paramedics, police, firefighters and similar roles, often all of it, on the reasoning that overtime is a built-in, reliable part of those jobs. Not every lender does, and the ones that do don't always define “essential” the same way.
Back to our nurse. Turn on the “what if” to run her again with the overtime treated like anyone else's.
- Base salary
- $92,000
- Overtime
- $34,000 a year
- The question
- Is her overtime counted as an essential worker's?
- Lender 1$608k
- Lender 9$612k
- Lender 22$625k
- Lender 14$644k
- Lender 3$649k
- Lender 6$649k
- Lender 24$649k
- Lender 13$650k
- Lender 4$652k
- Lender 12$652k
- Lender 2$655k
- Lender 21$657k
- Lender 25$657k
- Lender 20$660k
- Lender 23$661k
- Lender 7$663k
- Lender 27$663k
- Lender 8$666k
- Lender 5$666k
- Lender 18$676k
- Lender 26$677k
- Lender 19$699k
- Lender 17$700k
- Lender 10$700k
- Lender 15$703k
- Lender 11$745k
- Lender 16$757k
When her overtime stops being treated as essential-worker income, 17 lenders of the 27 lend less, by up to $65k. 10 lenders don't move at all: either they already counted all of it for everyone, or they never gave essential workers anything extra. That's exactly the kind of thing you want to know before you choose where to send the deal.
Check your understanding
0 of 3 answered1. What does it mean when a lender 'shades' rental income at 75%?
2. A client's overtime is regular, but they're a retail manager, not an essential worker. What should you expect?
3. Why can an income difference between lenders be smaller than it first looks?