Part staff mortgage -is it worth it?

Dooley

Hi
My partner and I are I looking to buy a house. He works for a bank and can get a staff mortgage on so much, which is 0.5%. Which is great but the remainder of the mortgage is non staff rate which is at 4.29%. (We're working on a 10% deposit).

Plus the fact there's the tax to pay on the benefit in kind.. it doesn't seem too cheap.

Putting figures into money supermarket mortgage finder, the first result up beats the deal with the total amount being on 1.99%. Admittedly that's for two years then it's up to 3.94. And it's a gamble what will happen with interest rates.

But am I missing something or is the staff rate not so great a deal??

pjread

I guess if it covered the whole loan it'd be good, but I guess capped at something like 3-4x the employee's salary? And is that 0.5% 'for life' fixed, or e.g. is it BBR+0?

Depending on your circumstances, is there a decent no-ties tracker you could get from them for the 'extra', and is there any real chance of you being at a better LTV in a couple of years?

TrickyDicky101

What's his income and what size of mortgage are you talking (and what % would be on the staff rate)?

Dooley

I'm not sure about it being fixed. It think the 0.5 might be.

The example figures are a mortgage of 225k. (Purchase price 250). They'll give us 127 on the staff rate and the remaining 98 on the 4.29%. That seems to be the best they can offer.

His salary is approx 31k.

Maybe we'll have paid more off the capital in a couple of years, with the 0.5%, and can remortgage to a better rate then?

TrickyDicky101

The rate on which HMRC/his work will determine the BiK is a combination (blend) of the two I believe which on a weighted average basis works out at c.2.15%.

HMRC works out the BiK against a reference rate of 3.25% so his BiK will be (3.25% less 2.15% equals 1.10%).

On a £225k mortgage (and not taking capital payments into account which will be minimal over the initial years of the mortgage) this works out at a BiK of £2,473.

In cash terms, since he is a basic rate taxpayer, this will cost an additional £495 per year which will most likely be recovered through his tax code.

So his effective rate in the first year is approximately:

(2.15% * £225k + £495) / £225k

= 2.37%

(this doesn't take into account capital payments over the year but that effect is marginal)

So if you can beat this with an alternative deal then you may wish to avoid the staff rate.

Dooley

Great. Thanks very much. That explains it a bit clearer for me.

pjread

Although if you're going to overpay and could selectively overpay the 'high' rate portion it might still be handy; if it's 0.5% fixed for life I personally would quite like that security (and sub-inflation rate forever) - I'd also be seeing if I could increase the proportion at it by e.g. extending term?