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RSU Mortgage

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RSU Mortgage

RSU Mortgage

Simon talks to us about how income from Restricted Stock Units could be used for a mortgage.

Podcast approved by The Openwork Partnership on 08/07/2024

What do we mean by restricted stock units or RSU?

RSU is an abbreviation for restricted stock units. For some companies, often big tech firms like Amazon, Google or Meta restricted stock units could form part of the overall compensation given to employees, in addition to basic pay or cash bonuses.

RSUs are usually defined as unvested, vested, cashed in or sold. Unvested RSUs are promised to an employee on a certain specific date in the future, perhaps subject to certain performance targets being hit.

Once that target is reached, the RSU is vested and the employee receives shares in the company’s stock. From that point, the individual could cash in that stock when they choose to.

Can I use RSUs as proof of the mortgage deposit?

You could, but not always, use vested RSUs to prove your deposit, , even if they have not yet been cashed in.

Ultimately, the lender will look at the value of the stock as if it were cashed in. But if you actually have cashed in your vested RSUs, the lender would simply define this as your own personal savings, accrued from your regular income. It’s pretty straightforward in that sense.

Can I use RSUs as part of my proof of income?

Yes – although your ability to include this on a mortgage application comes down to different qualifying criteria.

For example, lenders may want to know how long you’ve worked at the company, for what period you’ve been receiving vested RSUs, the vesting schedule moving forwards and more.

Typically, you would need to demonstrate a minimum of two or three years’ income from RSUs for this to be included. Lenders want to see a long and consistent history of the RSU income to include it in an application.

They want evidence of ongoing stability in this income stream – alongside the performance of the company’s stock, for example, to show you could maintain those mortgage payments moving forward.

Then lenders will assess the RSU income you’re receiving as part of your overall income and package, including your basic salary, any cash bonuses you receive and any other income – for example, property rental payments.

Some specialist lenders go even further and take more of a bespoke approach, particularly with individuals working for established employers. They’ll look at all elements of your bonus award, including cash elements, vested and even unvested stock you might hold.

While you could use RSU income for a mortgage, each individual’s situation is unique. It’s always worth speaking with a mortgage broker just to see where you personally stand.

Can I use RSU income as a First Time Buyer?

There are no issues or obstacles here. Buying your first home, doesn’t mean there are any specific differences to the criteria I mentioned.

I get bonuses, will this help me borrow more?

Probably, yes. Cash bonuses are easier for lenders to quantify, as you’d be receiving a specific amount at specific intervals, be that monthly, quarterly or annually.

The cash bonus income will contribute to your overall earnings and allow you to borrow more, even if the lender is only including a certain percentage in their affordability calculations.

The key consideration here is the period of time over which we need to evidence the cash bonuses you’ve received. For annual bonuses, typically two years’ history is required. For quarterly bonuses, sometimes it’s one year, but again, often two.

With any monthly additional pay, such as bonus, commission or overtime, a lender would look at the last three months and annualise the figure from there.

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What if my bonus or main salary is paid in another currency, like dollars?

Yes, this could be used on an application, although certain lenders won’t accept foreign currency as income. We just need to make sure that any application that we’re placing is with a lender that accepts that foreign currency.

For euros, dollars and Swiss francs, there are a number of different lenders. HSBC has a specific matrix of foreign currencies they will accept.

Something to bear in mind with foreign currency is that perhaps not all the income you’re receiving will be included. Sometimes a lender will take a ‘haircut’ – deducting a percentage from what you’re receiving. to allow for fluctuations in exchange rates.

Sometimes clients are paid their main salary in GBP while bonuses or RSUs may come in dollars or a foreign currency. Breaking down the individual elements of that is quite important.

What are the pros and cons of using RSU income to get a mortgage?

The most obvious pro is that you’re increasing your income, by combining income earned from RSUs in combination with basic salary and any other bonuses you’re receiving. That’s likely going to increase the amount you could borrow. It might allow you to buy at a higher level and purchase your dream home.

In terms of cons, not every lender will accept income from RSUs, which might mean we may not have access to some competitive interest rates in the market. We’d be going to slightly more specific lenders.

Also, the RSU income we’re using is based on the performance of the company’s stock. It might be worth giving some consideration to this income stream over the whole period of a mortgage term. While the big tech firms are performing well now, to afford your mortgage based on that RSU income from RSUs, do think about how those stocks might perform in future.

What else do we need to know about RSU income?

This is a relatively complex area, and each lender has their own specific criteria of what they do and don’t accept. It’s still new for some lenders, who might not have even specific criteria, and so things will be dealt with on a case-by-case basis.

Some underwriters we talk to about RSU income may not initially understand what it is,. They’re not particularly familiar with this type of employer remuneration.

Ultimately, that’s what a mortgage broker is there to do on your behalf. We use our expertise and understanding of specific lenders’ criteria and policies to match you with the right value option that works for your circumstances. We ensure that your plans go ahead without any unexpected issues.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Approved by The Openwork Partnership on 08/07/2024