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To take a pension contribution break to get a better mortgage?

(45 Posts)
Brankolium Sat 14-Jan-17 15:30:41

There is a huge disparity between what the bank will lend me when I'm not making pension contributions versus when I am making contributions. The lending difference equates to difference between a house being big enough and really not big enough.

Can I opt out of the NHS pension for the purposes of getting a better mortgage amount and then rejoin later? Or is rejoining after that too difficult?

In terms of mortgage repayments it is definitely affordable either way, so I'm not worried in that respect. I'm just unsure about the implications of temporarily leaving the pension.

Has anyone else done this? Any help gratefully received!

whyohwhy000 Sat 14-Jan-17 15:43:11

www.nhsbsa.nhs.uk/Documents/Pensions/Member_Opting_Out_factsheet_V3_07.13.pdf

From what this says, you need to fill in a form and return to your employer to opt out. To rejoin, you need to apply in writing to your employer.

daisychain01 Sat 14-Jan-17 15:45:59

I can only answer in general terms and this is my opinion.

I would not opt to come out of an employer contributory pension scheme under any circumstance, not least of all for a bit extra on the mortgage.

Pension contributions are very tax efficient and the fact your employer is contributing as well means you won't catch up i.e. Regain their lost contributions during your self imposed "holiday"

wowbutter Sat 14-Jan-17 15:49:25

Can you buy the missed Ines back? If you can... do it.

witsender Sat 14-Jan-17 15:58:08

Are the repayments affordable (scaled up to allow for interest rate increases) once you start paying a pension again? If they are I would, for as short a time as possible, if it meant not moving again and a lower rate.

SecondsLeft Sat 14-Jan-17 16:03:24

Check you don't lose any 'rights' to remain in an older more beneficial part of the scheme.

DailyFaily Sat 14-Jan-17 16:10:13

Speak to your HR department and they should be able to advise the best way to go about it and what the implications might be for you long term. I put my NHS pension contributions on hold for 3 months last year when I took a period of unpaid leave - I retained my place in the 'older' section of the pension and just restarted once my leave finished (I got this in writing from my employer before I took the leave). I don't know if that's an option if you are waged but you could ask.

Rh204 Sat 14-Jan-17 16:41:03

I am confused. Mortgage calculations are based on your Gross pay so pre tax and any other deductions including pensions. Pensions are not included in affordability as in fact they want you to have a pension in place particularly if the mortgage term extends close to or past retirement age based on state retirement age generally. I would definitely shop around before doing anything with your pension. i speak with expert opinion. Good luck.

languagelearner Sat 14-Jan-17 17:00:25

Check out what is "compound interest" and do some calculations in your spreadsheet after you've watched this video on YouTube www.youtube.com/watch?v=ID001e0_2dc and then decide for yourself when you've seen the numbers for yourself.

languagelearner Sat 14-Jan-17 17:02:28

What is a "big enough" house anyway? In what way is it different?

kittybiscuits Sat 14-Jan-17 17:03:25

Some lenders include pension contributions as income and others don't. You would be better to find a lender that doesn't deduct them. You need to be careful of losing membership of the 'old scheme' if you have it, as advised by DailyFaily

ChessieFL Sat 14-Jan-17 17:04:18

If you opt out you will lose the death in service cover that you get as a member of the scheme. If you are a basic rate taxpayer, you will only get back 80% of the contributions you're currently paying as you will pay more tax. My worry of doing this would be that I would get used to the extra salary so wouldn't rejoin the scheme. Personally I wouldn't do it.

Brankolium Sat 14-Jan-17 17:08:51

Some interesting points on each side and food for thought.

Rh204 - then I am confused too. Two mortgages in principle with the same bank, carried out one hour apart (today) and with only the pension contribution changed gave a 20% difference in the figure they would be prepared to lend. Do you think shopping around will be vastly different then?

Affordability-wise the pension contribution on top of the mortgage repayment isn't a problem at all. I was only hoping to leave the pension for a matter or 2 or 3 months until the sale went through, then start it up again. Would that be a huge hit further down the line when claiming the pension? Is there a big benefit to haven an unbroken string of pension contributions (other than the obvious missed payments from myself and the employer)?

VodkaKnockers Sat 14-Jan-17 17:10:46

Mortgage Underwriter here.

Most high street lender will include payslip deductions when calculating your net income affordability. Very few would ignore it as pension contributions are views as a non-discretionary deduction.

A NHS pension is a pre tax deduction so this shouldn't be affecting your requested loan that negatively.

Rh204 Sat 14-Jan-17 17:12:54

Two decision in principles done within an hour? Hope it wasnt 2 credit checks. Shop around 100% not sure what bank you went with but honestly do your shopping around before opting out of your pension.

TammySwansonxx Sat 14-Jan-17 17:15:35

You need to speak to your pensions dept and find out what the implications are of leaving for a few months. Could be vast, could be negligible but I doubt anyone here is qualified to advise.

PebbleInTheMoonlight Sat 14-Jan-17 17:19:53

If you're on a defined benefit pension scheme do not touch it, they are beyond valuable (even the lower yield ones) and I've never heard of anyone re-entering one successfully.

If you're on a contribution based scheme then you're only really losing the contributions for that period rather than the value of the pension in it's entirety.

As someone else mentioned ask if you can literally pause contributions for a specific period. This is a lower risk option as you never actually leave the scheme.

Brankolium Sat 14-Jan-17 20:11:22

No, not two credit checks (well, just soft credit checks which they assured me wouldn't matter). I hope that won't come back to bite me on the bum. I explained the situation to the bank and they just ran the mortgage in principal through the system again, minus the pension amount.

I'm going to investigate some other banks and see if I can find one that doesn't include pension contributions to see if that does make a difference.

To the poster that asked what a 'big enough' house is - it's the difference of 2 bedrooms and one reception room. And that makes a big difference in terms of whether some kids have their own room or all go in together. Also, whether you get a garden or just a miniature concrete slab included for the money!

If it just can't be afforded then that's that, but for the sake of 3 months pension contribution it feels frustrating. I see it's not to be undertaken lightly though, sigh. Very tricky...

Brankolium Sat 14-Jan-17 20:13:37

I like the mortgage 'pause' idea, but fear it won't cut the mustard with the bank. They'll need evidence that the contributions have been properly halted in order to pass their affordability checks.

smu06set Sat 14-Jan-17 20:15:00

Nhs pensions are AMAZING in terms of what you pay in vs what you get back, and assuming you are in a final salary /career average one, taking a break from contributions will seriously hurt what you get as a pension. Dont do it unless you really cant avoid it!

Rh204 Sat 14-Jan-17 20:24:28

I've never heard of anywhere discouraging you to stop paying into a pension in order for mortgage affordability to fit. I advise you go online and at least do some online calculators with each back to get an idea on what you could borrow elsewhere or see the broker at the estate agents. I would like to know which bank that is you've been dealing with too just out of interest!

Brankolium Sat 14-Jan-17 20:31:31

Taking a break from contributions will seriously hurt what you get as a pension Yes, that's my fear sad. I'd really like it spelled out exactly what that will entail though, so I can make an objective decision and weigh the penalty against the benefits of getting a house now instead of continuing to rent.

Rh204 - Four letters beginning with H!

thecapitalsunited Sat 14-Jan-17 20:36:37

HSBC have notoriously strict lending criteria. Another bank/building society may well lend to you even if HSBC won't.

smu06set Sat 14-Jan-17 20:38:41

Ok first things first you may not be able to opt back into the pension you are currently in. I assume you are in the nhs one that existed before 2015 - which is a final salary one. If you leave it, then the pension you get will be based on your current salary, not whatever it may have increased to by the time you leave the nhs. Essentially your pension in such schemes are based on your final salary, times number of years, times a fixed fraction. So leaving even if only temporary, essentially means however many years you have now are all you will get.
The pension you would rejoin is vastly inferior as it is based on career average earnings, not final salary. If you leave it too long it may even be a new scheme you join which is defined contribution, again another significant step down.
Does that help?

Rh204 Sat 14-Jan-17 20:43:27

Never heard such rubbish! I've never lost any business to HSBC i assume this is why because they are shit. Try Nationwide or Halifax as your next port of call. Or also a broker.

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