Traditionally, lenders use your take-home salary to determine what you can afford. They’ll factor this into the rest of your income – this could include freelance work, bonuses, investment returns and anything gained from bursaries or grants. If you’re taking home less due to a salary sacrifice scheme, this may have impacted your mortgage affordability.
However, as salary sacrifices have become a more popular way of buying a car in the UK, more lenders have begun to consider your gross salary before any sacrifices are deducted. They understand that you may be covering essential payments anyway (such as work vehicles and childcare) with tax-efficient schemes, while retaining the right to pause or stop those sacrifices to pay higher mortgage interest rates when they kick in. If a lender views your affordability in this way, a salary sacrifice scheme shouldn’t affect your mortgage affordability.
The Loan-to-Value (LTV) aspect
Although lenders often view sacrifice schemes leniently, they may have stricter criteria if you’re applying for a high LTV loan.
Anything over 80% is considered a higher LTV. The risk rises with the amount you’re loaning upfront. Therefore, if you’re pursuing a 90% or even 95% LTV agreement, the lender might leave salary sacrifices off the table.
This is the bigger question. After all, you don’t want to miss any repayments, or leave too little disposable income after sacrifices and mortgage costs are deducted each month.
It all depends on projecting your income, sacrifices and mortgage costs year to year. Talk to your lender and employer to gauge what’s genuinely affordable. Remember — you can always defer sacrifices for a while to better cover your mortgage responsibilities, or conversely, remortgage your home to free more cash for other avenues. Balance is key.
At the same time, bear in mind that you’re likely going to save hundreds of pounds each month in tax-free benefits and further savings that come with a salary sacrifice. You may take home less pay, but still earn more on the whole.
For instance, a low-emissions or electric car carries an extremely low rate under UK law if it’s given as a benefit-in-kind. These vehicles won’t surpass a 5% tax bill until at least 2028. Compared to petrol, diesel and hybrid cars, which have a tax rate ascending with Co2 emissions to a maximum of 37%, you’re much better off. Equally, you’ll save more on fuel duty and wavered congestion charges. Don’t forget that we offer salary sacrifice on a wide range of cars from manufacturers like Tesla, BMW, Kia, Hyundai and more.