Benefits to the Employer
ESM creates settled conditions of employment and can be a leading employee retention tool for any business. Employee replacement cost savings result as fewer employees leave the business. Motivation is higher as the reward is more directly related in ‘now’ terms. The Employer plays a leading role in making housing more affordable for employees.
Benefits to the Employee
The ESM enables the employee mortgage to be paid (or as much of it as is agreed), thus increasing net disposable income to the employee. The benefit is usually taxable as a benefit in kind and no employee NIC is payable – although there are instances when it may be tax exempt. The employee is then funding for the tax and not the mortgage payment from after-tax income, resulting in savings of up to 25%+. This is because the tax payable (20%-45%) will be a percentage of the mortgage subsidised.
The employee’s house can be paid for earlier and his or her mortgage loan much reduced. Younger employees may be assisted onto the home ownership ladder as first- time buyers.
Benefit Strategies for Employees
Our specialist team will assist individuals in setting up their ESM accounts. They will also create savings and make mortgage payments more efficient where possible.
Flexible Alternatives
The ESM Benefit can provide number of alternatives.
- A mortgage subsidy for a family member – the employee uses his benefit to fund his child’s mortgage, or a divorced spouse’s mortgage.
- Funding a mortgage deposit for 1st time buyers.
- Rental payments are subsidised as opposed to mortgage payments.
- Our ESM specialist advisers can construct a mortgage benefit option/cost scenario plan for each employee, if required. This creates maximum efficiency.
- School and University fees can also be subsidised.
Useful Employer Strategies
- Arrangements with mortgage lenders to secure the best possible mortgage deals for Employees. The buying power of combined Employers in our programme can possibly secure lower interest rates and better terms for their Employees.
- Where Employer cash flow is not available for beneficial loans, then such loans are sought on favourable terms from third party lenders.
- Links with Government and other Agencies interested in promoting home ownership and first- time buyers to source their grants and other opportunities for employee home buyers. This includes group savings schemes using the LISA (Lifetime ISA) for home ownership (where the Government contributes 25% of the cost of a deposit through a tax- free savings plan – save up to £4,000 per annum). The Help to Buy ISA ended 30 November 2019 and is no longer available though.
Employees Based Abroad
The ESM can be established for employees based offshore. Overseas mortgages can be funded by ESM.
Flexible Benefits – increasing value
Where there are existing flexible benefits in place, HR may wish to restructure personal arrangements for maximum benefit and effect. An example is to reduce the value of a car benefit and to add a mortgage subsidy benefit within cost parameters. Funding is then shifted from a depreciating asset to an asset which increases in value.