Broker suggesting that I stop pension contributions

PensionNs

I am looking to buy a house and talked to a broker about whether I could borrow x. He said I am significantly short of meeting affordability for that amount.

However, my payslip has a deduction for pension payments which due to some new rules went up to 5% (as per HR) recently. This reduced my monthly net pay by a little less than £200 compared to my first 2 payslips in the job. The broker suggested that if I stopped contributing temporarily, that would improve my affordability significantly and that I could restart contributions after completion if I so wanted.

Wouldn't that be mortgage fraud?

muhandis

While the pension advice from the broker is questionable, I don't think that you would be committing "mortgage fraud" by following it, any more than borrowers who slash monthly commitments temporarily to improve affordability.

ilikepancakes

Fraud? On what basis?
It's like you spend £500 for food each month and would it be a fraud when you start spending £700 after getting a mortgage?

[Deleted User]

I am assuming he is talking about a specific lender that calculates affordability on net pay. A lot of lenders will calculate on gross pay and not include pension contributions unless its an AVC that you dont want to stop. Their affordability calculations already build certain things in.

As an example, HSBC used to take pension contributions off the affordability but last year removed them completely from the affordability calculator.

Unless you are stretched to the point only a single lender will lend and that one works off net pay then there must be another lender out there for you.

Do you know what lenders are being discussed at this point? How far off affordability are you?

If you post some basic income and credit commitment figures you might get a rough idea of how far away you would be

ACG

As above, most lenders will ignore pension contributions as they can be stopped if needed.

Are you limited in your options when choosing a lender?

SonOf

The broker suggested that if I stopped contributing temporarily, that would improve my affordability significantly and that I could restart contributions after completion if I so wanted.

And ask any investment class adviser how many people they have seen over the years who only temporarily ended their pension contributions wtih the intention to restart but never got round to it.....

Wouldn't that be mortgage fraud?

No. However, advising someone to opt-out of an occupational pension requires the adviser to hold pension transfer specialist permissions. No mortgage broker is going to have those as its an investment class permission. So, technically, it could be a regulatory breach if it was seen to be advice. In reality, they probably think they are doing you a favour but if you were to complain, you could get them into a lot of trouble.

You do have to question the knowledge of the individual though when you consider that most lenders dont take pension contributions into account anyway.

PensionNs

I am sorry my post wasn't clear. Yes, my borrowing options are limited due to past bad credit from a relationship breakdown. My credit history is on the mend now, but will take take a good few years to fully recover.

The broker is a specialist in this area. He did inform me that my options are limited to one or two lenders but skirted any questions as to which ones they were. He also said the potential lender does not do AIPs which I was a bit sceptical about. Are there lenders who don't do AIPs?

ACG

We do a lot of adverse and the majority of lenders do AIPs. It sounds like it might be a little building society, I think that is the only way these 2 things stack up.

On a side note from SonOf, is the advisor recommending the pension payments stop or is he saying the only way he can make it pass is if they stop?

SonOf

On a side note from SonOf, is the advisor recommending the pension payments stop or is he saying the only way he can make it pass is if they stop?

It depends on whether it is worded as a recommendation or a just a conversational point.

However, mortgage brokers dipping into investment class permission does happen (albeit not often) and we put in a complaint against a mortgage broker about indirect pension advice and the FOS upheld it. Not the same scenario as here. It really all comes down to how the complaint was made and the audit trail that exists. If the broker never mentions the pension on any factfind/closure letter then its harder to show they gave advice. However, if the consumer complained that the adviser told them to stop the pension and they did, then the FOS may treat that as sufficient enough even if there is a limited audit trail showing that. The FCA are very much against funding for things now by "robbing" your retirement years. The FOS follow through on that with their decisions.

PensionNs

Strictly speaking, he did not 'recommend' that I stop contributions, just mentioned that if I were to do so my affordability would go up to the borrowing amount I needed. He said it's pretty easy to stop and start.

Just to be clear, he is only trying to help and I have no intention of making a complaint, etc. My pension has a grand total of two months worth of contribution in it and to be honest I didn't even know I could stop it else I would have done it already. I just thought it was a legal requirement due to the change in rules that HR told me about.

enthusiasticsaver

I would be extremely sceptical of any broker who suggested manipulating your income by reducing or stopping pension contributions to help you get a bigger mortgage. If it is that tight what will you do if interest rates rise or your income drops? Stopping your pension is unwise due to the fact that you get tax relief so you will not get back as much as you may think and you miss out on employers contributions. Why have you only got 2 months contributions and how old are you?