Salary sacrifice pension and effect on mortgage

monkey84

Hello All,
I currently belong to my employer public sector pension scheme. I contribute 6% of my salary per month through salary sacrifice and my employer contributes 13%. As a pension member I receive benefits such as life insurance.
I am about to start approaching banks to get my first mortgage. My employer has told me that they will declare my gross income for mortgage purposes (i.e the amount I receive before salary sacrifice) but I am wondering if I will still need to declare my salary sacrifice payments as part of my monthly outgoings when I apply. Basically, will being on my pension scheme affect the amount I will be able to borrow? I am contemplating opting out of the scheme on a short term basis and then opting back in once the mortgage is sorted, but am not sure if this is wise or not.

Thanks very much for any advice.

dunstonh

I am contemplating opting out of the scheme on a short term basis and then opting back in once the mortgage is sorted

That would be silly as you would lose your employer contribution. Its not required to do it either. The lender will use your higher income figure before salary sacrifice.

property.advert

dunstonh wrote: »

The lender will use your higher income figure before salary sacrifice.

From a little research last year that seems to be the case but only this week there have been a couple of stories about lenders seemingly moving away from simple arithmetic calculations and looking at the bigger picture.

One thing mentioned was whether you had kids or not. Historically there was perhaps an assumption that everyone had kids during the length of a mortgage and thus the risk remained average but the greater risk is at outset and if you have kids when applying, then you simply have less disposable income from the same gross salary as someone without kids.

It is not much of a jump to look at salary sacrifices as well. Hell, add a few bits of data to the mix and you can have all manner of things reducing the offer and more accurately reflecting the risk to the lender.

Surely that is going to be the way forward.

Loughton_Monkey

I really think you have no worries here. Mortgage applications are reasonably thorough (these days) and they get salary sacrifice all the time. I cannot believe that two people - in exactly the same circumstances, other than salary sacrifice - would be treated any differently by any 'normal' lender these days.

Certainly if I were to be underwriting two such cases, but only had one mortgage to grant, I would give it to the one on salary sacrifice since he is better off because of it, and it indicates 'efficient' financial planning on your part.

As to opting out for a while, I would strongly recommend reconsidering. It is throwing 13% of salary away isn't it? And more? And it is something most people, I think, would regret in future years.

molerat

If you opt out now you may not be able to re-join on the same terms. Opting out of a public sector pension is rarely a clever move, moreso now with possible changes for new entrants.

Andy_L

monkey84 wrote: »

Hello All,
I currently belong to my employer public sector pension scheme. I contribute 6% of my salary per month through salary sacrifice and my employer contributes 13%. As a pension member I receive benefits such as life insurance.

Are you sure its salary sacrifice & not just deducted from your salary before you receive it? The contributation rates sugests its a public sector final salary scheme & I don't think any of them use salary sacrafice.

monkey84

Yes, it's definitely salary sacrifice. It's called pension smart. My gross salary is reduced each month and I pay less national insurance.

StephenM_2

I'm in a private sector final salary scheme with salary sacrifice, paying 5% pension contributions. On my payslips the first entry is "Reference Pay", which is my gross salary before the salary sacrifice. That's what would be used for a mortgage application.

The salary sacrifice appears on the payslip as "Smart Adj". I then pay NI on "Reference Pay" minus "Smart Adj"