Does Salary Sacrifice affect My Mortgage?

The short answer is, no, your salary sacrifice scheme should not affect your mortgage application.

So long as the lender you are applying for takes into account your “gross” income (before deductions), rather than your net income, you shouldn’t need to worry. It’s been noted that Santander in the UK will look at net income sometimes.

For more like this: FAQ: Salary Sacrifice in the UK

Historically, lenders used your net income, but in the UK now they use your gross income. Why?

Partly because they have to, house price to salary ratio have risen from 3 times in the 1970s to over 8 times as for 2024. You simply would not be able to borrow enough if you had to rely on your net income. Once one company does it, the others have to fall in line to remain competitive.

Few things to be aware of when you are on a salary sacrifice scheme either for electric car, finance, or pension.

Although salary sacrifice may not affect your ability to get a mortgage the mortgage lender will assume you will cancel any of your salary sacrifice schemes should you need to repay the loan. So don’t get too comfortable with that fancy car, or those large pension repayments.

Example: I used to put an extra 10% of my salary into my pension via salary sacrifice. As I was forecasting an extra £250k by the time I retired.

However, since interest rate rises in 2023 and the cost of living crisis of the same year I found I needed to increase my cash reserves. So I decided to cancel my repayments temporarily (my company still puts in 10%). Until I reach my 6 month emergency fund, I can’t put money into my pension.

You just need to be prepared that this can happen. In hindsight it would have been a good idea to have this emergency fund ready beforehand. Perhaps, reader, you can take something from that.

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