Mortgage reduction due to FEMPI regs

gosplan

Myself and the OH are public sector. I get this means most people here hate me now. For the record though, I work harder than anyone I know and get paid less than most of them.

Anyway, turns out banks won't give us 3.5 times salary because they're discounting public service pension levy (a bit under 5K pa between us).

I know lending is all at banks discretion but it seems a bit much.

Guy in bank asked me to explain what it was.

'remember all that money you needed....'

I don't mind paying it. Well I do obviously but I'll continue to, that's OK but it seems a bit rich that I can only get 3.30 or whatever multiple because of a bail out levy made necessary by the banks.

gosplan

Pkiernan wrote: »

So, you have to pay for your pension? That's awful.

From the banks point of view they are right to deduct this, as you have no access to this money until you retire, so how on earth could you use it to pay your mortgage?

Ha ha. Expected that response. Like I said if you read, I don't really mind paying it.

Given we have no access to PAYE, USC, etc, should this also be discounted from the 3.5? That seems to be what you're suggesting.

bidiots

Pkiernan wrote: »

So, you have to pay for your pension? That's awful.

Wow, edgy.
The levy is an extra tax on top of the existing contribution. But I'm sure you know that ...

gosplan

bidiots wrote: »

Wow, edgy.
The levy is an extra tax on top of the existing contribution. But I'm sure you know that ...

Just to add, this is all mandatory and a condition of employment.

So I am obliged to pay 300 per month between the pension contribution and the levy.

That's a sizeable monthly outgoing. Like I said, needs must and I don't mind paying it but I'm disappointed it has affected me in this manner.

If you take a public servant on 40K pa, it's the difference between borrowing 140K for a mortgage and borrowing 130K. Seems a bit unfair, no?

caviardreams

Pkiernan wrote: »

So, you have to pay for your pension? That's awful.

From the banks point of view they are right to deduct this, as you have no access to this money until you retire, so how on earth could you use it to pay your mortgage?

But private pension contributions don't influence the limits for private sector workers - so if the OP was working in the private sector, he/she might choose to pay 20% of her salary into a pension, but the banks don't reduce the 3.5 times multiple because of this, as far as I know? This is the issue the OP has, not that he/she is paying the levy.

Perhaps a broker might be able to make the case OP?

ted1

gosplan wrote: »

Just to add, this is all mandatory and a condition of employment.

So I am obliged to pay 300 per month between the pension contribution and the levy.

That's a sizeable monthly outgoing. Like I said, needs must and I don't mind paying it but I'm disappointed it has affected me in this manner.

If you take a public servant on 40K pa, it's the difference between borrowing 140K for a mortgage and borrowing 130K. Seems a bit unfair, no?

That's what most people pay into their private pension. Nothing unfair about it, the cash isn't available for paying a mortgage, it shouldn't count towards your ability to pay

gosplan

ted1 wrote: »

That's what most people pay into their private pension. Nothing unfair about it, the cash isn't available for paying a mortgage, it shouldn't count towards your ability to pay

So, you're saying that 3.5 times multiple actually means 3.5 times take home?

Can you answer please because you're the second person to take this line and I don't think it makes sense.

gosplan

ted1 wrote: »

That's what most people pay into their private pension. Nothing unfair about it, the cash isn't available for paying a mortgage, it shouldn't count towards your ability to pay

Just FYI as well, avg employee pension contribution is 5.4%.

alastair

gosplan wrote: »

So, you're saying that 3.5 times multiple actually means 3.5 times take home?

Can you answer please because you're the second person to take this line and I don't think it makes sense.

The 3.5 rule is supposed to apply to gross annual income, so you're right - the removal of pension levy from that figure is at odds with the rule.

ted1

gosplan wrote: »

So, you're saying that 3.5 times multiple actually means 3.5 times take home?

Can you answer please because you're the second person to take this line and I don't think it makes sense.

The 3.5 is a guide they have other reasons for reducing it such as making
deductions for each child.

gosplan

Edited: actually there's no point in discussing this. Some people thinkthat because I work for the public service, anything like this is my due comeuppance for wasting so much money/bankrupting the country/etc.

I just think the whole thing is ironic and a bit of a kick in the teeth.

4ensic15

When the public service paid lower PRSI the banks made no allowance for the greater repayment capacity at that time so it is a bit rich that they subtract the levy now.

ted1

4ensic15 wrote: »

When the public service paid lower PRSI the banks made no allowance for the greater repayment capacity at that time so it is a bit rich that they subtract the levy now.

Banks look at take home pay, and disposal money. The 3.5 is an "up to" limit not the guranteed.
public, private sector didn't come into it. In the past the banks criteria was 1/3 if your disposal income - 250 per month per kid.
So if you took home 3000 cash, they would give you a mortgage of 1,000 a month or 750 if you had one kid or 500 if you had 2 kids

Glenbhoy

ted1 wrote: »

The 3.5 is a guide they have other reasons for reducing it such as making
deductions for each child.

3.5 times is max allowable, it's not a hard and fast rule. My wife is public sector, I'm a qualified professional in full time employment, we were offered less than 3 times gross salary.

Glenbhoy

gosplan wrote: »

For the record though, I work harder than anyone I know

That's going to help change the apparent "hatred of all on here alright".
Fairly subjective and difficult to measure all the same, do tell us how you're arriving at that conclusion?

ted1

Glenbhoy wrote: »

3.5 times is max allowable, it's not a hard and fast rule. My wife is public sector, I'm a qualified professional in full time employment, we were offered less than 3 times gross salary.

That's what I was saying, but joint applications are also treated differently, especially if your married, they kind if figure one parent will end up being a stay at home parent or that you'll have childcare costs

Just remembered that they are allowed make exceptions for 20% of applications

johnnyskeleton

The whole multiples of gross income is a bit ridiculous, to be honest.

Higher earners pay a greater percentage of their income in tax, so as you go up the scale the ratio of net income to maximum borrowings decreases.

These things should be worked out on the basis of ability to repay, history of repayments and the value of the security (including the LTV). These create a risk factor which could be applied to any given loan. On the same property, its a safer bet for a bank to give a 50% mortgage to someone on a low income than it is to give a 90% loan to someone on a higher income, in my opinion, but the bank is muh more likely to lend to the higher income people. If they lose their jobs its a much greater proplem than it is for the people who have a large equity in the house.

Victor

Can we get this thread on-topic for Accommodation & Property?

Moderator

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From you bank's point of view, the pension levy is a mandatory deduction. That isn't the case with pensions. This sets you apart from borrowers who don't have to pay the pension levy.

The pension levy exists to pay your / your colleagues pension, which are unfunded, not to bail out the banks.

gosplan

Underfunded you mean.

Obviously it wasn't going to the banks directly but if we're talking about public finances, you can't leave them out of consideration.

I get that in the banks eyes I make 28.5K even though my wage cert says 30K. Just find it a bitter pill to swallow.

gosplan

ted1 wrote: »

That's what I was saying, but joint applications are also treated differently, especially if your married, they kind if figure one parent will end up being a stay at home parent or that you'll have childcare costs

Just remembered that they are allowed make exceptions for 20% of applications

In fairness, in OP I said that lending is at banks discretion. That's been understood from the start.

You said that most people pay 300 per month to a pension - wrong.

You also stated that the reason it's discounted is because it's not disposable income. But as I said neither is PAYE, PRSI, USC etc.

The reason I guess is as Victor said. 3.5 for the standard person but public service pay an extra levy which sets us apart.

This is why the bank don't care about my crèche fees, children etc. That's factored in to the 3.5 in their minds, maybe unless you have significant outgoings or a particular issue.

dubrov

I think there is something else going on here. I would've thought banks would lend in excess of 3.5x to a public sector couple.

Are you both permanent and have you demonstrated an ability to save regularly?

gosplan

dubrov wrote: »

I think there is something else going on here. I would've thought banks would lend in excess of 3.5x to a public sector couple.

Are you both permanent and have you demonstrated an ability to save regularly?

Yes. We have deposit saved over time. No outstandings, budgeting fine etc.

It's slightly OT but I also would have thought that an exception may have been likely because of job security etc.

Of course, that would mean the banks are motivated by risk and not profit. I can see how it would make far more sense to them to give an exception to a junior accountant/solicitor etc who might get a second property/trade up etc. I'd be a safe bet but not a profitable one. That's fair enough though.

4ensic15

ted1 wrote: »

Banks look at take home pay, and disposal money. The 3.5 is an "up to" limit not the guranteed.
public, private sector didn't come into it. In the past the banks criteria was 1/3 if your disposal income - 250 per month per kid.
So if you took home 3000 cash, they would give you a mortgage of 1,000 a month or 750 if you had one kid or 500 if you had 2 kids

I am not talking about what the banks look at now. In the past the banks based the loans on 2.5 times one income and 0.5 of a second income. No allowance was made for public servants paying lower PRSI despite having 5% more disposable income.

The J Stands for Jay

alastair wrote: »

The 3.5 rule is supposed to apply to gross annual income, so you're right - the removal of pension levy from that figure is at odds with the rule.

The part of your pay going to a pension isn't included on a p60. Could thus be what the bank are looking at?

alastair

McGaggs wrote: »

The part of your pay going to a pension isn't included on a p60. Could thus be what the bank are looking at?

That would be true of any pension though - not just public sector pensions.

The J Stands for Jay

alastair wrote: »

That would be true of any pension though - not just public sector pensions.

That's my point. I'm trying to show OP that maybe the bankers aren't out to get public sector workers

gosplan

McGaggs wrote: »

That's my point. I'm trying to show OP that maybe the bankers aren't out to get public sector workers

Apologies if I gave off that impression. I wouldn't feel at all that Public Sector are being targeted in any way.

Jen44

It must be bank dependent I just got a mortgage and it was based on 3.5 times my gross pay. Pension levy deductions didn't come into it.