Reduced mortgage offer due to pension salary sacrifice

Calcus

My daughter was given a mortgage offer based on her salary of £121000. She has a deposit of £28000 and had an offer excepted on a house. During this period she was driven a company car and was given the opportunity to enter the company pension scheme. Her company does this through salary sacrifice and now the mortgage company have reduced her mortgage offer to £10800 because it is not shown on her payslip. This despite the mortgage company having her payslips prior to the pension contributions and her company writing a letter to explain that the reduction is down to her pension. Has anyone come across this before.

CBeardsworth

Just to clarify, I assume you mean that the mortgage offer was £121,000 rather than her salary and has that reduced to £10,800 or £108,000?

My partner puts money into a share scheme at work and they haven't taken that into account for our mortgage so I assume its the same. Obviously if its going into her pension its no longer disposable income to spend on her mortgage repayments so it makes sense. If she needs more money then I suggest going to a good broker, there can be a big difference in what you can get.

G_M

Calcus wrote: »

... based on her salary of £121000.
.....Wow!

she was driven a company car
.....where did she go in it?

and was given the opportunity to enter the company pension scheme. Her company does this through salary sacrifice
so her monthly disposable ncome has dropped, right?

and now the mortgage company have reduced her mortgage offer to £10800 because it is not shown on her payslip.
this makes sense

I can't see why you are surprised. Since her disposable income is now less, she will potentially struggle more to meet the monthly mortgage payments.

Hoploz

If the original offer was based on a total salary then assumptions were made about affordability. When they did the due diligence checks they found her take home pay was lower than expected and so they reduced the offer to a sum their calculations decided were affordable.

It would be reasonable to provide the lender with the payslips which show the latest information rather than out of date payslips which show a different take home pay.

She needs to see an independent broker who deals with many lenders in order to get the best result for her own situation.

booksurr

technically salary sacrifice means the salary is reduced before it is "paid" and that is why it has the tax advantages it has

hardly surprising the lender has therefore reduced their offer since she has not, technically, earned it

xylophone

http://www.scottishwidows.co.uk/Extranet/Literature/Doc/51415

Other benefits which are linked to your salary, for
example, benefits on death, redundancy payments
and over-time rates, may be impacted.
• Entitlement to certain statutory benefits may also
be affected, including:
– State Pension
– Statutory Maternity, Paternity or Adoption Pay
– Statutory Sick Pay and Incapacity Benefit
– Working Tax Credit
– Child Tax Credit
More information on which benefits can be impacted is available
at https://www.gov.uk/salary-sacrifice-and-the-effects-on-paye
• Mortgage lenders usually base the maximum borrowing
amount on the salary after exchange, which could reduce
the amount you can borrow. However, it may be possible
to agree to retain a ‘notional’ or ‘reference’ salary (salary
before exchange), which mortgage lenders may agree to
use in their calculations.

sheramber

Salary sacrifice means that the company puts the money in the pension scheme rather than handing it over to her. So in effect, they do take it straight out of her salary. They then calculate her NIC and tax on the reduced amount so she benefits from that.

Calcus

Thanks to all. The problem is not that her salary has gone down but rather the salary sacrifice is not shown on her payslip. Her employer chooses not to show it and this is what is causing the problem. We thought a letter from her employer would sort it but it has not.

Grenage

Hey salary has gone down, that's why it's called salary sacrifice.

FBaby

Contract of employment?

ReadingTim

The pros and cons of salary sacrifice are clearly set out here - see the first bullet point under "things to consider before taking a salary sacrifice".

As mentioned above, employers will usually provide a notional or reference salary (ie without salary sacrifice), but this won't help in respect of affordability - as it's being paid directly into her pension, she doesn't see it to spend it elsewhere, and has no discretion over it.

The only solution I can suggest is going to a broker who can search the whole of the market to find another lender who would be willing to lend the amount she was originally quoted. However, if one bank doesn't think the original amount was affordable, she might want to genuinely think about whether she can afford this place, as it sounds like she's stretching herself a little too thinly, and a small rise in interest rates, continued rise in the cost of living, largely stagnant wages, starting a family, or simply a written off car and a knackered boiler could tip her over the edge.

The banks may just be covering their @rses, but they might also be doing her a favour, and this is a blessing in disguise.