RSU Mortgage
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RSU Mortgage
Adam Nunn and Jon Porter explain how Restricted Stock Unit (RSU) income works when applying for a mortgage.
Do RSUs count as income for a mortgage in the UK?
Typically, there haven’t been many options, but in recent years, we have started to see more lenders consider using RSU income towards their affordability assessment.
It will depend on how long the RSU has been received and the evidence you can provide, such as P60s or payslips. The vast majority of lenders will also want to see the terms and conditions of the RSU agreement, as this is separate from your employment contract.
They may also want to see your overall stock plan service report. So there are a couple of key documents to prepare when looking to use this as a form of income.
What do we mean by restricted stock units or RSUs?
RSUs are a form of employee compensation and benefits issued by a company. They’re essentially promising to give you shares in the future, once you meet certain conditions with them.
They’re commonly used to attract or retain employees. They might be offered when joining a company or as an annual award, given the performance of the individual, the company, and the milestones achieved.
The key thing is that RSUs don’t have any cash-in or monetary value at the time when they’re granted. After a certain period of time, they become vested. After the vesting period, the RSUs can be converted into actual shares, which can be kept, or you can sell and cash them in.
Can I use RSUs as proof of a mortgage deposit?
Yes, you can use RSUs as a form of your deposit, provided they have been vested and you are then able to sell them to create liquid cash.
They are an investment that can go up or down. You need to decide before buying the property that it’s the right time to cash them in – then you know exactly what you have available towards your deposit.
Can I use RSUs as part of my proof of income?
Yes, you can. More lenders now use RSUs as income for affordability assessment. You would normally need to have at least two years’ history of them, and the majority of lenders will require them to be vested, so they can be drawn down as cash.
Can I use RSU income as a first-time buyer?
You can. There is no restriction on who can use them. Again, the key is your individual circumstances, the history of receiving them, and your ability to evidence that they can be drawn down as an income.
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Are there other stock options that can count towards affordability or proof of deposit?
As proof of deposit, you’ve got employee stock purchase plans, or ESPP. There are also performance shares and incentive stock awards. You can also use stocks and share ISAs from companies, as well. Those would all be more helpful towards your deposit than for general affordability.
I get bonuses – will this help me borrow more?
Yes, in many cases it can, because a bonus is a form of taxable income which is widely accepted by lenders. How much you can use is influenced by the type of bonus you’re receiving.
Lenders will consider how many years you’ve received the bonus, and whether it’s paid annually, quarterly, or monthly. Has it increased year on year or reduced? That might determine whether they use an average of your last few years’ bonuses or just the latest year’s figure.
Certain lenders also have criteria on whether they use 100% of your bonus or just 50% if they’re more risk-averse. Ultimately, bonuses are widely accepted by mortgage lenders, but how they’re used can vary.
What if my bonus or main salary is paid in another currency, like US dollars?
Not all lenders will accept foreign income, unfortunately, so we need to approach the most suitable lender for you. The lenders that do will typically use a currency converter, so we’ll use that to calculate your income in sterling.
They may then reduce that figure, e.g., they might go down to 80% of the total. This is known as a haircut, and is designed to account for changes in currency exchange rates.
What are the pros and cons of using RSU income to get a mortgage?
Using RSUs can improve your overall borrowing capacity via the affordability assessment. This can be especially helpful if you have sizeable ongoing financial commitments. A recent example is a client of ours who was paying high private school fees plus high child maintenance for a set period.
That ultimately reduced how much they could afford to borrow. But we had evidence of this RSU income and identified lenders who would utilise that as income to improve the borrowing capacity. Another route is to find a lender that would use the RSU to offset the cost of those expenses.
That’s, of course, a great benefit if you receive RSUs. The main drawback is that RSUs are invested shares, which means their value can fluctuate. If you’re relying on an RSU and it’s not yet vested or converted into cash, there is always the risk that its value could fall by the time you choose to draw it.
How can a mortgage broker help here? Is there anything else you’d like to add?
How lenders can use RSUs varies a lot. This is quite new in the mortgage market, and your own bank might not allow you to use these for a mortgage.
What we can do is source the right lender and guide you through it. In the example we shared earlier about the client with school fees, the cost was over £60,000 a year. That had a massive impact on standard lenders who would not consider the RSU. But we were able to get that taken into consideration and find the right mortgage for him.
We’ll review your individual circumstances, account for the various different income streams, and find the right lender to suit you. Then, we basically hold your hand throughout the whole process.
Key Takeaways:
- More UK mortgage lenders are beginning to consider Restricted Stock Unit (RSU) income for affordability assessment, but they typically require at least two years of history, proof that the RSUs are vested, and evidence such as P60s, payslips, and the RSU agreement or stock plan service report.
- RSUs are an employee compensation benefit that promise future shares upon meeting certain conditions; they only gain monetary value after they “vest,” allowing them to be converted into shares and cashed in.
- Vested RSUs can be sold to create liquid cash and used as proof of a mortgage deposit, but when used as income for affordability, lenders generally require them to be vested and available to be drawn down as cash.
- Utilising RSU income can significantly improve your overall borrowing capacity, especially if you have high ongoing financial commitments; however, the main drawback is the risk that their value, as invested shares, can fluctuate or fall before they are drawn down.
- Because RSUs are a relatively new consideration in the mortgage market and lender criteria vary widely, a mortgage broker can source the specific lenders who will accept and utilise RSU income based on your individual circumstances.
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