Will the bank consider employee stock options?
Some companies offer their employees the opportunity to invest in an employee share scheme (ESS), or the shares may form a part of their salary package.
How much of your dividend income the lender uses will determine your home loan borrowing power:
- Most lenders will typically use 80% of your dividend income from an employee stock ownership plan.
- Some lenders use your current shareholding not an average of your last two years, which makes sense if you decide to increase your shareholdings.
- Some lenders give discounted home loan rates for a home loan to buy shares in your employer that is secured on a residential property.
- Borrow up to 95% of the property value to buying a property using employee shares.
- Some banks assess you as self-employed if over 25% of your income comes from your employer.
- Some lenders want to see financials and tax returns for your employer.
We’re experts in employee share scheme home loans where there is real estate as security.
Please call us on 1300 889 743 or fill in our online enquiry form today.
How do I avoid being assessed as self-employed?
Bank policies have to draw a line in the sand as to who is a pay as you go (PAYG) employee and who is self-employed.
As a general rule, if over 25% of your income comes from a business, and it’s not from your personal labour, then you’re considered self-employed.
Some lenders will assess you as self-employed if any of this income is required to prove you can afford the loan.
If you can show with tax returns that you don’t require this dividend income to cover your mortgage repayments, you’ll be treated as a standard full-time employee by the banks.
This opens up the door to much more lenders and much better interest rates and loan terms.
Why won't the bank use 100% of my dividend income?
The main reason is that dividend income from an employee stock ownership plan tends to fluctuate.
This is the same reason why only a percentage of bonus, commissions, overtime and shift allowances. Banks are looking for a consistent history for this extra income.
The other reason is if you change jobs in the future.
Some companies may insist that employees give back their shares when you resign, or sell them at the current market price, even if that price is less than what they paid.
Will banks allow negative gearing for an investment property?
Even if you’re using an investment property as security, banks will not allow negative gearing (i.e. a tax deduction of the loan interest) if you’re using a home loan to buy company shares.
This is despite the fact that the Australian Taxation Office (ATO) focuses on the loan purpose, not the security used for the mortgage.
Can I avoid investment loans and business loan rates?
You will be stung with higher investment loan rates if you use an investment property as security.
The other problem is that the beneficial owner of shares may not always be you as the employee.
It may be a self managed superannuation fund (SMSF) or your partner or spouse.
This not only means that you will be charged with higher business loan rates but also confuses lenders and may change the way that they assess the loan.
You can avoid these higher fees by using your own home as security for the home loan.
We have lenders that can take a flexible approach.
Call us on 1300 889 743 or complete our free assessment form to discover if you qualify for an employee share scheme home loan.
Companies that offer employee stock ownership plans
There are many companies that see the benefit in offering ESS arrangements.
The reason is that it tends to incentivise employees to work to achieve better company results.
This is particularly true of high performers who often receive shares as a performance bonus, or as a form of remuneration, instead of receiving a higher salary.
Companies like GHD have staff that have been there for a long time and they buy shares each year.
Other companies that offer employe share schemes:
- Woolworths
- CSL
- Dulux
- Red Bubble
- ASX Limited (yes, they are a company)
- Brambles Limited
- Optus Singtel
- Goodman Group
- Culture AMP
Do you earn other fringe benefits? Find out if you can include them as part of your assessable income!
Ordinary shares versus pseudo shares
Ordinary shares actually give employees an equity investment in the company, meaning that they have a say at annual general meetings and the like.
With other companies, the employee shares simply pay dividends rather than providing the shareholders any voting rights.
The good news is that it makes no difference to your chances of getting approved for an employee share scheme home loan.
Discover if you qualify
Whether you want the lender to accept your dividends from employee stock options, or you want to lend against your property to buy into an ESS scheme, we can help!
Call us on 1300 889 743 or complete our online enquiry form today.