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Mortgage payments through salary sacrifice a ‘good idea’ for those with no unsecured debt – analysis

  • 07/06/2023
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Mortgage payments through salary sacrifice a ‘good idea’ for those with no unsecured debt – analysis
Brokers have welcomed the idea of people paying off their mortgages through salary sacrifices following the launch of a petition calling for the government to consider the move.

The petition advocating for mortgage payments to be paid through salary sacrifice, similar to pension contributions, has garnered more than 24,000 signatures. 

Nick Mendes, mortgage technical manager at John Charcol, said such a change would be a “shining light” and welcomed by borrowers. 

He added: “Many households feel that their income is being stretched beyond imagination, food inflation, higher energy costs, wages not keeping in line with inflation along with higher mortgage rates. It’s no surprise to hear people are feeling poorer and having less disposable income compared to two years ago.   

“Compounded by tax changes, that will impact 7.8m people who are projected to be paying income tax at 40 per cent or above by 2027-28, resulting in 2.1m more higher rate taxpayers and 350,000 additional-rate taxpayers in five years’ time, according to the Office for Budget Responsibility (OBR).” 

Adam Wells, co-founder of Lloyds Wells Mortgages, said it was a “great idea”, adding: “It would help millions of people who are struggling financially.” 

He said the government would lose out on a significant amount of tax revenue, but “the benefits to homeowners would outweigh the costs to the government”. 

Wells added: “Homeowners would be able to save money on their taxes, which would free up more money for other expenses. This would be especially helpful for families who are struggling to make ends meet. It would be great to see this extended to cover household bills such as council tax, gas, electricity and water too.   

“In addition, homeowners would have more control over their finances. This would make budgeting easier and could help to reduce stress levels.” 

Mendes echoed this, saying: “When we consider current deductible salary sacrifice schemes such as medical benefits, cycle to work scheme, pension contributions and car finance can all be used, considering most homeowners highest outgoing would be a major step forward, reducing the tax burden many are likely to fall into in the future.  

“It will be important to take into consideration the potential impacts when your taxable pay goes down which impacts your national insurance contributions affecting entitlements like sick pay.” 

However, he said he did not envision the government introducing what is essentially a tax break on a mortgage. 


Caution for people with unsecured debt 

Darryl Dhoffer, mortgage and protection consultant at The Mortgage Expert, said it was an “interesting concept”, but he always encouraged his clients to make use of existing allowances such as 10 per cent overpayments. 

He said very few people seemed to take up this option when in fact this could help them get used to higher monthly repayments if their rates increased after refinancing. 

However, he said this would be more appropriate for people without other outstanding debt.  

Dhoffer said: “The ability to make mortgage contributions through salary sacrifice before tax is a good idea, but I see this mainly suited to clients that have no other unsecured debts in the background. Those that have higher interest unsecured debts such as credit cards and loans, really need to focus on using any additional income on clearing these down. 

“Having the ability to clear unsecured debts as an overpayment facility via your wage slips would be a better alternative to making overpayments on your mortgage, as generally the payments and interest payable are much higher. Clearing these quicker than a mortgage could later enable switching the salary sacrifice or deduction to the mortgage.” 

Dhoffer also warned that the salary sacrifice could cause a rise in unsecured debts as people “feel the pinch” with a smaller pay slip. 

He said paying off a mortgage was an ultimate goal for many, but in the higher rate environment, clients were best served thinking of the short to medium-term until things settle. 

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