莲花直播

Written by Rob Buckland

Salary sacrifice schemes are an attractive way for employees to get their hands on a new EV and enjoy tax savings. But while the immediate financial benefits are compelling, you may be thinking how it could impact other areas of your finance - your mortgage, or a potential mortgage, in particular. 

This guide will walk you through how salary sacrifice for an EV could impact your current mortgage or your aspirations to own a home. 

What is EV salary sacrifice?

An EV salary sacrifice scheme is when you trade in a portion of your pre-taxed annual salary in return for a new electric car. Once an employer has opted to set up a salary sacrifice scheme, like the our Salary Sacrifice Scheme, employees will be able to choose from a list of electric cars. Your company will then lease your chosen EV from a leasing company through a business contract hire agreement, normally lasting between two to four years. To cover the costs, your company will deduct these from your monthly salary and pay the leasing company.

Does salary sacrifice affect your mortgage application?

Mortgage lenders traditionally use your take-home salary to determine what you can afford. They’ll factor this into the rest of your income - this includes freelance work, bonuses and investment returns. If you’re taking home less due to a salary sacrifice scheme, this may impact how much you could borrow and your ability to meet the monthly mortgage payments.

However, more lenders have begun to consider your gross salary before any sacrifices are deducted. They understand that you may be covering essential payments anyway with tax-efficient schemes, while reserving 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.

Does EV salary sacrifice affect my mortgage repayments?

Joining a salary sacrifice scheme could have a financial impact on your mortgage if you’re already a homeowner. As a salary sacrifice scheme will reduce your monthly take-home pay, this could affect your ability to meet your existing mortgage repayments, particularly if your finances are already stretched.

If you’re considering an EV salary sacrifice scheme, make sure that you fully understand how a salary sacrifice scheme works, calculate the reduction in your salary, and work out whether this meets your ongoing mortgage payments. If you’re on a variable-rate mortgage or approaching the end of a fixed-rate mortgage, be mindful that your mortgage payments will be higher in the future. 

Are EV salary sacrifice schemes worth it?

EV salary sacrifice schemes can be very worthwhile as they offer significant tax and National Insurance savings, potentially making owning or leasing an EV more affordable. However, it’s important to understand what it may mean for your finances going forward, especially if there’s a mortgage involved.

Here are some benefits to an EV sacrifice scheme:

• Tax and National Insurance savings: By sacrificing a portion of your pre-tax salary for an EV, you can reduce your taxable income, and therefore, your tax and National Insurance contributions, leading to more savings. 
• Affordability: Salary sacrifice potentially allows you to access a new EV that you might not otherwise be able to afford. 
• Bundled services: Many schemes include services such as insurance, servicing, and maintenance. This makes it a hassle-free way to drive an EV. 
• No upfront costs: You don’t often need to make an upfront payment for a salary sacrifice scheme, making it easier to transition to EVs. 
• Environmental benefits: By switching to an EV, you can reduce your carbon footprint and contribute to a more sustainable future. 

If you’re considering joining a salary sacrifice scheme and want to protect your mortgage prospects, here are some steps you can take: 

• Seek expert financial advice: Consult with a financial advisor to better understand the financial implications for your personal finances. 
• Understand the BiK tax: Be aware of the Benefit-in-Kind tax and what it means for your monthly costs. 
• Explore lender policies: Different mortgage lenders have varying policies regarding salary sacrifice. Understanding these policies can guide you in choosing the right lender for your circumstances. 

Salary sacrifice and mortgage FAQs

Does an EV salary sacrifice affect your credit score?

One common concern is whether joining an EV salary sacrifice scheme could negatively impact your credit score as this plays an important role in your ability to secure a mortgage. 

Salary sacrifice schemes themselves don’t directly affect your credit score as you’re leasing the vehicle through your employer. However, if the reduced income created by being in a scheme affects your ability to meet existing financial commitments, or makes it a challenge to repay debts promptly, then this could indirectly lead to credit score issues.

Can I salary sacrifice my mortgage in the UK?

No, the UK government currently has no plans to allow tax-advantaged salary-sacrifice schemes for mortgage costs.

Is salary sacrifice bad for a mortgage?

The amount of salary you sacrifice each month will reduce the amount of take-home pay you get, thus making it harder to meet your mortgage repayments or potentially affecting the maximum mortgage amount you can qualify for.