Getting a mortgage and ESPPs

I

ian866

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I’m thinking of buying next year (hopefully) and have a nice deposit which is a combo of investments in stocks, savings etc.

The idea is to sell my stocks at some point and have everything in cash for a deposit.

I’ve recently stopped putting money in to stocks to try show the banks that I can save €x a month but now my job has offered us ESPP’s and I’m tempted to get involved since there’s a heavy discount on them

So my question is:

1. Could this look bad when I go to get a mortgage? Technically I’ll be taking home less money and have less money at hand but when I sell I’ll end up with more money - at least a 15% gain

2. If you were in my shoes would you avoid the ESPPs to make it easier dealing with the banks?
 
I presume that the ESPP gives a minimum discount of 15% or something like that? I would avail of this scheme and liquidate the ESPP shares immediately on acquisition at the end of the (6 month?) purchase period and then put the proceeds aside for the deposit. That makes comparable to saving the money on deposit at a guaranteed 15% gross interest rate over 6 months which you won't get anywhere on deposit. I can't see how a lender wouldn't see this as a prudent savings strategy.

If you are currently holding shares in your employer acquired via a stock incentive scheme or independently then you should maybe consider liquidating them ASAP unless there is some tax reason to wait. Holding shares in the company that also pays your remuneration is putting two eggs in one basket and thereby concentrating risk.
 
ClubMan said:
I presume that the ESPP gives a minimum discount of 15% or something like that? I would avail of this scheme and liquidate the ESPP shares immediately on acquisition at the end of the (6 month?) purchase period and then put the proceeds aside for the deposit. That makes comparable to saving the money on deposit at a guaranteed 15% gross interest rate over 6 months which you won't get anywhere on deposit. I can't see how a lender wouldn't see this as a prudent savings strategy.

If you are currently holding shares in your employer acquired via a stock incentive scheme or independently then you should maybe consider liquidating them ASAP unless there is some tax reason to wait. Holding shares in the company that also pays your remuneration is putting two eggs in one basket and thereby concentrating risk.
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Yes 15%

Yeah my thinking was also to liquidate as soon as I can as well.

I’m still holding the companies shares from other sources, but before going for a mortgage I’ll sell them all
 
ian866 said:
I’m thinking of buying next year (hopefully) and have a nice deposit which is a combo of investments in stocks, savings etc.
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If you are buying within 2 years, you really should not own shares if you are depending on them for a deposit.

If the shares you own fall 40%, will you still be able to buy the house you want? If not, sell the shares now and stay in cash.
 
The exception would be the ESPP.

If you get a discount of 15%, then go for it. But as ClubMan advises, sell again asap.

I think it's worth taking the risk of a 40% fall for a "built in" 15% gain.

Brendan
 
Brendan Burgess said:
If you are buying within 2 years, you really should not own shares if you are depending on them for a deposit.

If the shares you own fall 40%, will you still be able to buy the house you want? If not, sell the shares now and stay in cash.
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Yeah I currently have most of my savings in shares, which I know isn’t ideal. However my current plan is:

If they drop say 40% I’ll buy a smaller place, if they stay the same / increase I’ll buy a bigger place. Either way I’ll be able to buy something decent enough for my needs if that makes sense. I still have savings that aren’t in stocks so I have a deposit at the ready - the question is how big I can make that deposit
 
ian866 said:
Either way I’ll be able to buy something decent enough for my needs if that makes sense.
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Fully agree with that strategy.

I have explained that to other people and they don't get it because of our natural tendency to value losses more than gains.

Brendan
 
From what i can recall AIB classified my espp contributions as demonstration of savings. I sold at each 6 month interval.

If you sell shares within the 6 months of applications/drawdown they will look for evidence of declaration to revenue.
So in our case I made sure we had enough cash for purchase and didn't complicate drawdown by selling shares in the interm.
 
Brendan Burgess said:
I think it's worth taking the risk of a 40% fall for a "built in" 15% gain.
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I don't understand this. If the ESPP shares are liquidated immediately on acquisition then there is no risk of any fall in value and there's a guaranteed return of at least 15%. It could be more with lookback pricing and where the end price is higher than the start price. And even if the end price is 40% lower than the start price the employee still gets a 15% discount/return on that.
 
I misunderstood how the ESPP works

I thought he had to hold onto them for 6 months.
If he gets a 15% discount and can sell immediately, he should do so.
 
Brendan Burgess said:
I misunderstood how the ESPP works

I thought he had to hold onto them for 6 months.
If he gets a 15% discount and can sell immediately, he should do so.
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Ah, ok. Normally the purchase period is 6 months and the shares purchased at a discount can be liquidated immediately at the end of each purchase period. There may be a small window (e.g. a few days) while selling them during which the stock price may fluctuate but usually the risk is marginal. Employees also usually can't trade during blackout periods but the ESPP would usually be timed to avoid these. In short, an ESPP is usually a guarantee of at least 15% gross or just over 7% net (assuming 52% tax + PRSI + USC) on the money saved over the 6 month period. As such it's normally a no brainer unless the employee simply can't afford the ESPP contributions. Employees can usually contribute up to 10% of their gross to the ESPP scheme.
 
Just check the terms of the ESPP scheme to make sure that there's no minimum holding period when you get the shares. If there is, don't bother with the scheme until you get the mortgage. If there isn't, sign up, sell the day after you get your shares and lock in the (minimum) 15% gain.
 
Good point @miser. I have been assuming that (bar blackout periods affecting all employees) the ESPP shares acquired can be liquidated immediately and have tried to state that each time. :)
 
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