Equities Trader Switches £850k Mortgage on £1.2m Home to Offset on Bonus-Heavy Income
An equities trader earning most of his income through an annual bonus was approaching the end of a fixed rate on an £850,000 mortgage against his £1.2m London home. His existing lender had no offset option, so a product transfer was ruled out on day one. A remortgage to a clearing-bank offset product assessed his bonus at 50% of a two-year average, and now puts each bonus to work against the balance from the day it lands without giving up access to the cash.
Client Snapshot
£1,200,000
Property value
£850,000
Remortgage (like-for-like, no additional borrowing)
Just under 71%
Loan to Value (LTV)
Equities trader at a global investment bank, seven years on the same desk · Two-bedroom warehouse-conversion flat, Clerkenwell, central London · Capital and interest over the remaining 20-year term, two-year fixed rate with an offset facility attached · £160,000 base salary; discretionary annual bonus of £210,000 in the latest year and £190,000 the year before (two-year average £200,000)
Key constraint
Wanted bonus cash reducing the cost of the mortgage without losing instant access to it, and completion before the existing fixed rate expired
Context
After seven years on an equities desk at a global investment bank, the shape of the client's pay was settled: a £160,000 base that covered his routine outgoings, and a discretionary bonus that arrived each spring and funded everything beyond them. The bonus was £210,000 in the latest year and £190,000 the year before. The five-year fixed rate on the £850,000 mortgage against his Clerkenwell flat, a warehouse conversion he had bought five years earlier for the short cycle to the office, was due to expire within three months. In some years he had made overpayments from the bonus, then been uneasy at how firmly that cash was locked away. In others he had held it as savings, where the interest was taxed at 45%: as an additional-rate taxpayer he receives no personal savings allowance. The balance was staying where it was. What he wanted was a structure that let each bonus reduce the cost of the mortgage while remaining his to use. That pointed to an offset mortgage.
The Challenge
The first problem was product availability. Offset mortgages are a minority product: a major clearing bank offers one in the mainstream market, a small number of specialist banks and private banks may structure similar flexible facilities, and much of the mainstream market, including the client's existing lender, currently offers none. The path of least resistance at the end of any fixed rate is a product transfer with the existing lender; with no offset in that lender's range, staying put meant giving up the structure entirely. The field, insofar as our panel of lenders was concerned, was going to be short.
The second was the shape of his income. An £850,000 loan against a £160,000 base is more than 5.3 times salary (£850,000 ÷ £160,000). That is above the 4.49 times ceiling that may apply as standard across much of the market, so the application only worked if the bonus counted. Bonus treatment varies widely: lenders may use anywhere from 50% to 100% of a bonus depending on its regularity and track record, may average two years or take the latest year if lower, and may cap variable income relative to base. The mechanics are set out in our guide to bonus income mortgages. Choosing an offset lender meant accepting that lender's bonus methodology with it, so the two questions had to be solved in the same place. It is the pattern that runs through most of the cases in our guide to mortgages for trading professionals.
Timing mattered too. With the fix expiring in under three months, drift meant reverting to the lender's standard variable rate (SVR), an expensive place to sit while a new application caught up.
Director and Mortgage Adviser
Specialist mortgage broker for City professionals. David has structured remortgages for traders and other bonus-led earners where the product has to fit the shape of the pay, matching offset and flexible facilities against each lender's bonus methodology.
Lender Strategy
The field for offset lending is short, and shorter still once bonus treatment is factored in: there was no value in a lender whose offset facility came with a bonus methodology that could not support the loan. Most of our panel was ruled out on product grounds at the first pass. The case was placed with a major UK clearing bank whose range includes an offset product alongside its standard residential lending.
On that lender's assessment, the discretionary annual bonus was taken for affordability at 50% of the lower of the latest year and a two-year average. The two-year average of £200,000 was the lower figure (the latest year was £210,000), contributing £100,000. Added to the £160,000 base, recognised income became £260,000, and £850,000 of borrowing sat at roughly 3.3 times that figure. That is a comfortable multiple, and it let the application move quickly.
The offset mechanism itself is simple. The mortgage sits alongside a linked savings account with the same lender, and interest is calculated daily on the net balance: the loan minus whatever the account holds. Cash in the linked account reduces the interest charged on the loan. It earns no interest of its own, so there is nothing to tax, which for a 45% taxpayer makes it a materially more tax-efficient use of the same money than a savings account. And it stays instantly accessible: nothing is committed, and nothing needs to be applied for to get it back.
Consider the year's cashflow. Suppose the linked account holds an average balance of £150,000 across the year: the bonus at its peak just after it lands, drawn down gradually by spending and planned costs. At an illustrative mortgage rate of 4.5%, offsetting that balance avoids £6,750 of interest in a year (£150,000 × 4.5%). The same £150,000 in a savings account paying an illustrative 4.25% would earn £6,375 gross (£150,000 × 4.25%). After tax at 45%, with no personal savings allowance, the net return is around £3,500. On the same cash, the offset route is worth roughly twice as much, and the borrowing it sits against remains £850,000 at roughly 3.3 times recognised income.
Worked example, the same income and the same cash
Equities trader, £160,000 base, £200,000 two-year average bonus, £850,000 offset remortgage
How the bonus was recognised, and what the offset does with the cash it produces.
- Base salary
- £160,000
- Discretionary bonus, latest year
- £210,000
- Discretionary bonus, year before
- £190,000
- Two-year average (the lower figure, so the one used)
- £200,000
- Bonus taken for affordability at 50%
- £100,000
- Refinancing
- £850,000 at just under 71% Loan to Value (LTV)
Income multiple on £850,000
£850,000 ÷ £160,000 is more than 5.3 times salary, above the 4.49 times ceiling that may apply as standard across much of the market. On base alone the application does not work.
The two-year average of £200,000 was the lower figure, contributing £100,000. Added to the £160,000 base, recognised income became £260,000, and £850,000 of borrowing sat at roughly 3.3 times that figure.
The same £150,000 of bonus cash over a year
£150,000 × 4.25% earns £6,375 gross. After tax at 45%, with no personal savings allowance, the net return is around £3,500.
Offsetting an average balance of £150,000 avoids £6,750 of interest in a year (£150,000 × 4.5%). The cash earns no interest of its own, so there is nothing to tax, and nothing needs to be applied for to get it back.
The same cash throughout. On the same £150,000, the offset route is worth roughly twice as much as the taxed savings account, and the borrowing it sits against remains £850,000 at roughly 3.3 times recognised income.
Please note: These figures are for illustrative purposes only. The actual amount you can borrow will depend upon your personal circumstances, credit profile, LTV, the lender's individual criteria and a full affordability assessment.
The application was packaged with three months' payslips, the last two years' P60s, the corresponding bonus award letters evidencing both payments, and a short covering note making the purpose explicit: same balance, no additional borrowing.
The Result
The Result
An £850,000 offset remortgage completed at just under 71% LTV, with the bonus assessed at 50% of a two-year average
£850,000
Loan (like-for-like)
Just under 71%
LTV
£260,000
Recognised income (base + 50% of two-year average bonus)
c. 3.3×
Income multiple
First call
Day 0
Full mortgage offer
17 working days after the first call
Completion
Five weeks after offer
Old rate expiry
Ten days after completion; no time on SVR
An £850,000 offset remortgage completed at just under 71% LTV: capital and interest over the remaining 20-year term, on a two-year fixed rate priced in line with the wider mainstream market at this LTV, allowing for the modest premium offset products may carry. He kept the 20-year term rather than extending it, wanting the loan cleared by his mid-fifties, with the offset absorbing the cashflow swings in the meantime; the fix was kept deliberately short so the whole arrangement can be reviewed once the offset has proved itself. At his cash balances the structure still came out comfortably ahead of the premium. The offer was issued 17 working days after the first call. Completion came five weeks later, ten days before the old rate expired, and no time was spent on the standard variable rate. His latest bonus went into the linked account the week it was paid and has been offsetting the balance since.
Why This Matters for Similar Clients
Trading pay has a particular shape: a base that covers life, and one or two large receipts a year that do everything else. With a standard product, bonus cash either sits in savings with the interest taxed at the highest marginal rate, or goes into overpayments and stops being available. An offset suits the shape of that income — each receipt starts reducing interest the day it arrives and stays available for whatever comes next. The field of lenders offering one is small and their bonus methodologies differ, so lender selection has to solve product and income treatment in the same place.
What We Can Do for You
- Establish whether an offset structure fits how your pay actually arrives, and how much cash you hold across a typical year
- Identify the short field of lenders on our panel offering offset facilities, from the mainstream market to specialist and private banks
- Match that field against each lender's bonus methodology, so recognised income supports the loan you need
- Package the bonus evidence so an underwriter can trace every figure first time
- Time the remortgage to complete before your current deal expires, avoiding any period on a standard variable rate
FAQs
A linked savings account sits alongside the mortgage with the same lender, and interest is calculated daily on the loan balance minus the savings balance. The savings stay accessible; they simply stop the equivalent slice of the loan accruing interest while they sit there.
Yes. The offset element does not change how income is assessed: lenders may use anywhere from 50% to 100% of a bonus depending on its regularity and track record, commonly assessed against a two-year average or the latest year if lower.
No. Offset is a minority product: a major clearing bank offers one in the mainstream market, and a small number of specialist and private banks may structure similar flexible facilities. Much of the mainstream market currently offers none.
They do different jobs. An overpayment reduces the balance permanently but the cash is no longer accessible without further borrowing. An offset can deliver a similar interest saving while the cash remains available, which may suit borrowers whose income arrives in large, irregular receipts.
They may carry a modest premium over an equivalent standard product. Whether the structure pays depends on the cash you hold against it: the larger the average offset balance, the more interest is avoided against that premium.
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YOUR HOME MAY BE REPOSESSED IF YOU DON’T KEEP UP REPAYMENTS ON YOUR MORTGAGE
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This client scenario is an amalgamation of cases we have handled. Details have been combined and adjusted to protect client confidentiality, and it does not describe a single client or transaction.