In our Q&A, we address some of the frequent or unusual questions posed to mortgage brokers.
Does RSU income count as income towards a mortgage?
In short, yes! We can help you find lenders who can consider this income, though many will not.
There is, however, still a good range of suitable lenders for most applicants, with rates ranging upward from some of the most competitive in the market.
If your application has been declined, or if you have spoken to other advisors who said this income isn’t acceptable, call us.
It is a complex type of income, which many advice firms may be unfamiliar with. Many lenders will not accept it, so never take being refused by a few lenders as a definitive answer.
If another advisor says it’s unsuitable, other factors may be involved. So always take a second and third opinion.
Our RSU income mortgage advice service
The criteria determining overall eligibility and how much will contribute towards your maximum loan is complex and varied.
The good news is we can help you find and arrange suitable loans with lenders who accept this income stream and calculate correctly their appropriate maximum loans whilst also ensuring that you meet all the other criteria that might be applicable.
There’s a good chance (if you receive RSU income) that you may also have other challenging factors, like non-sterling income, dual-taxation arrangements or a fixed-term contract. If you are a foreign national on a visa, this is also one of our areas of expertise, so rest assured we can help.
Our typical advice fee is only payable after a fully approved application (there is no cost in getting recommendations). So, we don’t earn anything unless an application is successful.
Our typical fee is just £299. We earn a commission from the lender (but this is built into the product), so we don’t change the rate or applicable fees. We’re whole of the market and deal with most of the lenders in the UK. We don’t typically charge a fee on remortgages.
We do not, however, deal with customers residing outside the UK. If you live overseas, we cannot assist you. Other advisors may.
Maximum income multiple available with RSU income
This question, is raised frequently. But lenders don’t just use income multiples, so you shouldn’t focus on this aspect.
Whilst most lenders have a maximum multiple (which many never publish), they usually have a myriad of other calculations as well; based on net income, other credit commitments, financial dependents and stress testing based on notional interest rates (one reason why maximum loans have decreased significantly in the current high-interest rate environment).
So, the only way to get a firm sense of how much you can borrow with complex income streams is to speak to a competent broker such as ourselves; we can check all the suitable lenders’ affordability calculations.
When it comes to complex income streams, especially those that vary month-to-month, it’s necessary to see payslips over 3-12 months, P60s and get a full breakdown of all commitments to give an accurate estimate.
If you try to preempt this with income multiples, you might either massively over or underestimate realistic borrowing levels. There is no cost involved in having an outline discussion with us. So get in touch!
Factors affecting the lenders available for RSU income mortgages
With any income that fluctuates, lenders will often look for continuity. If a monthly bonus scheme has been received in only one of the last three months, fewer lenders will accept it.
Being a UK taxpayer and being paid in sterling is a requirement for many lenders accepting RSU income, but not all. If your income is in another currency or taxed overseas, we can still help.
The length of time working for your current employer will be pivotal in the number of lenders available. If you have worked for this organisation for less than a year, fewer lenders are available.
Some lenders will only consider this income once it vests. Hence, they may be looking at income received two or three years ago. In that case, you would need to have been employed with the current firm for a long period.
What is income paid as ‘restricted stock units’ otherwise known as RSU income?
This income is quite unusual for those employed outside the tech sector. The employer pays someone part of their salary or performance-related pay in the company’s shares instead of cash.
These shares are restricted, meaning they receive them several years after being awarded, typically with a requirement to remain at the business to receive those share units.
It’s a great way for the company to create further incentives for the employee to remain at the organisation, and work to the best of their ability.
The employee has a significant part of their income riding on both remaining at the business and its long-term performance.
Why do many lenders refuse to accept this income?
The logic can be quite varied and is typically quite flawed.
Lenders will often say it’s about the volatile nature of many of the shares involved; price fluctuations in shares like Alphabet (or Google), Apple, Amazon, Microsoft, Tesla, etc might be more transient than others, but they are still some of the most valuable entities on earth.
Some lenders complain that the income is deferred and not in someone’s pocket for several years.
That could be a concern for a new starter, but (for those who have been in the job for several years), they arguably provide a greater degree of certainty that the applicant’s income continues through recessions and downturns.
They might also choose to retain the stock as an investment, but anyone paid cash could also buy shares with their income; the lender still has the same exposure.
Really, underneath the answers given by the lenders is an underlying truth; lenders have to simplify their decision-making processes and regiment these in some way (to facilitate scaling their operation).
So, only the smaller building societies or boutique private banks tend to assess each application on a ‘case by case’ basis and typically charge a premium for that service.
Most lenders, therefore, create a very defined set of rules about what is allowed, and these rules often take a long time to reflect changes in the outside world.
RSU income will likely become increasingly accepted due to its growing prevalence and the fact that it arguably offers the lender more protection than other performance-related pay.
But today, if your lender refuses to consider this income, applying via a different lender will likely be the most effective use of time, and we can help to ensure that application goes to a lender who accepts this income.
In our Q&A, we answer some of the questions mortgage advisors answer regularly.
Question; I hear it is difficult to arrange a mortgage on a freehold flat; why is this, and is it possible to mortgage one?
In a freehold property, you are responsible for the maintenance and insurance of the building and own the land attached.
In the case of a typical house, this is a good thing. However, in the case of a flat, there may be no clear definition of who is responsible for various parts of the building.
Your ceiling may also be a neighbour’s floor, and your floor, another neighbour’s ceiling.
Imagine that your upstairs neighbour leaves his bath running and your roof collapses; whose responsibility is this now?
If your neighbour has no insurance, it could get pretty messy, and that is why it can be a no-go area for many mortgage lenders.
But, the question of mortgaging freehold flats can also turn into something reminiscent of a Monty Python sketch.
Where the plot thickens; is in what context may the property be considered a freehold flat?
Freehold flats in Scotland
If you are buying in Scotland, especially if you live in the rest of the UK, you may be unaware that there has never really been an equivalent to leasehold property in Scotland.
So a property listed as a freehold flat is not a big issue over the border.
Properties that own a share of the freehold
Properties that own a share of the underlying freehold are not themselves freehold.
The property will have a lease and may need to pay service charges and ground rent, just like any other leasehold property, although some have no regular charges payable.
When a lease requires an extension, it is still a costly process.
Their main advantage over a leasehold flat is that you have some say in managing the freehold with the other owners; you would hope this means that charges should be more fairly administered.
These properties are often sold and listed as freehold, with the blissful ignorance of the vendor, estate agent and even the lenders’ surveyors.
Who, for reasons unknown to science, are usually considered bastions of fact in complex legal matters; despite having no relevant qualifications in the field; instead of the lender checking the land registry.
What ensues is mortgage applications being rejected based on properties being freehold on the hearsay evidence of an estate agent.
If you have found yourself in this situation, we should be able to help. These properties are normally acceptable to many mainstream lenders.
Many still have complex rules about the share of the freehold and how it is owned and managed, so it is vital to select the right lender. But if you have found this problem, we should be able to help.
Properties with a long lease or lifetime lease
On occasion, a property with a long lease of 999 years, or thereabouts, will be described by a vendor as freehold, under the impression that it is ‘as good as freehold’.
Often, when there is no service charge, ground rent, or a ‘peppercorn ground rent’ of £1 per annum, sometimes a service charge or ground rent is payable, but the freeholder is absent.
If the freeholder is known and the vendor is just misrepresenting the property as freehold then the situation is readily fixed by asking the vendor and agent to tell it like it is.
An AWOL freeholder can present different problems beyond the scope of this post and is something to discuss with your conveyancer or solicitor, but aren’t the boon they may appear to be.
In most cases, we can help you arrange a loan on these properties; if the freeholder is absent, consider this problem before getting seriously involved in the purchase.
A freehold flat or maisonette where the remainder of the properties in the block are leasehold
A common area of confusion is a property that owns the freehold of a block, and the remaining properties within it are leaseholds.
These are not uncommon; often they are created when someone converts a house into flats and retains ownership of one of those properties. It is not possible to own a lease to a property when you also own the underlying freehold.
Legally speaking, we are repeatedly advised by conveyancers that such properties should be as good as any other leasehold flat from a mortgage perspective, but you will not find this in practice.
The vendor of such a property will usually make it very clear that it is freehold, as there is a public perception of this being preferable due to the often unfavourable costs of service charges, ground rent and for occasional lease extensions imposed by many freeholders.
Mortgage lenders usually make their staff very aware though, that they do not lend on what we might consider a truly freehold flat, where all the properties in the block have a freehold title.
That creates a situation where the lender immediately rejects any application and refuses to value the property, under the misapprehension that it is the more ominous type of freehold flat.
For this reason, you will find it very difficult to arrange a mortgage on such a property without a competent advisor.
Generally, a mortgage on these properties should be possible with mainstream high-street lenders, although many may still be unsuitable. Get in touch with us for help on these.
A freehold flat or maisonette where the remainder of the properties in the block are freehold
This is where things get more complex.
For these properties, complex rules are set out by lenders within their guidance notes to conveyancers on acceptable tenure in the Council of Mortgage Lenders Handbook.
Whilst enquiring directly to a lender will usually result in an endless slew of responses refusing to consider freehold flats, speak to any conveyancer, and you find that there are often acceptable legal instruments other than an actual lease over the property.
You should be led by your conveyancer on the properties suitability for a mortgage from the legal perspective; the property may still be unsound structurally or have other issues that make it complex to mortgage.
Such properties may often be marketed as cash purchase only or even sold at auction. In the case of a cash purchase, the agents may have agreed to sell the property this way based on other factors, such as property condition. Again, this may have caused a decision to sell at auction.
So do not treat an indication from a conveyancer that a property can be mortgaged as final, and you should be prepared to risk losing your deposit if you intend to purchase such a property at auction and require a mortgage.
If you are intrepid enough to try and mortgage such a property we can help, once a conveyancer has been through the legal side and confirmed that it is suitable.
But expect that such a purchase could take some time as it might have to be sanctioned by the lender’s internal legal team, which is a notoriously slow process that often takes several weeks.
Can someone over the age of 75 go on a mortgage?
Occasionally we are asked if we can arrange mortgages for elderly, or retired people of age 70, 75, 80 or even 90.
That will depend on the circumstances: whether the mortgage is for a buy-to-let or Residential property, if it is a joint application and if the income of the older applicant is necessary for affordability.
Most lenders for buy-to-let mortgages will have a maximum age of up to 80, but some have no maximum.
For Residential mortgages, where the income of the older applicant is required in the application, most lenders will not go beyond the age of 75-80. Many may be even more restrictive.
If it is a joint application with a younger applicant who can afford the mortgage in their own right, then some lenders will ignore the age of the other applicant entirely.
Other products available to seniors, such as ‘Lifetime Mortgages’ and ‘Home Reversion Plans’, may be more suitable, which work in very different ways to traditional mortgages and require specialist advice.
It is important to remember that all applicants on a mortgage would be responsible for the payments regardless of whether their income is used in assessing the case.
Therefore, as part of the advice process, we would consider arranging protection in case of death, illness or injury to either party.
To get expert advice, call 0345 4594490 or fill in our short enquiry form.
Is it possible to get a mortgage whilst on maternity leave and still include my income?
As many couples think about moving to larger homes when their family starts to grow, they regularly ask if it is possible to get a mortgage when on maternity leave.
The simple answer is yes for almost all circumstances. However, there are lots of considerations and lenders do vary in the way they calculate affordability during this time.
Some lenders will use only the income during maternity leave in their affordability calculation, which usually results in low maximum loans.
However, other lenders will use the ‘usual’ salary or the ‘return to work’ salary in the calculation if a return to work is within the next few months.
If your return to work is much later, there may still be one or two lenders who will consider the application under these terms.
For evidence, lenders may request a letter from the client confirming the ‘usual’ salary and the current income.
They often request a letter from employers to confirm the return to work date, future terms such as changes to hours, and ‘return to work’ salary.
It will be important that mortgage payments are still affordable during the maternity leave, so evidence of savings to substitute the difference in income and mortgage payments will often be required for the remainder of the maternity leave.
When calculating affordability, future childcare costs and changes to other commitments must be considered, to ensure the mortgage will remain affordable.
For further advice and help arranging a mortgage whilst on maternity leave, call 0345 4594490 or fill in our enquiry form.
We have recently launched the first of several new mortgage calculators, which aim to provide much more sophisticated systems for borrowers to assess their lending ability online.
The most important of these new calculators is the maximum loan calculator, which models some of the more complex systems for affordability lenders are using to assess customers borrowing potential.
Lenders are increasingly stepping away from using pure income multiples, and the large high street banks and building societies now consider many factors: including credit scoring, the number of financial dependents and overall debt-to-income ratio, to decide on an appropriate borrowing figure.
The calculator is (as far as we are aware) the only one currently available which illustrates how different types of lenders’ calculations vary, taking into account dependents, existing credit commitments and credit scoring.
We have several more new tools in development, soon to be added, so keep an eye out for more coming soon.
