Key Post Should AIB staff now avail of the staff rate of 3%?

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Rose11

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HI Brendan again!

I asked your opinion back in early Dec on below and you advised that with low margin to stay on tracker....however, with unprecedented ECB increases, am now looking for updated advice! I am staff and wonder what you think about going on the staff rate of 3% but I'm a bit worried what BIK could cost us and therefore wondering if we would be better off fixing at 5 year LTV @ 3.35%?


On a tracker mortage with AIB: ECB + 0.75%

2) Amount outstanding on your mortgage
€144k on the tracker (also €99k on fixed rate of 2.15 for 4 years)

3) Remaining term 16yrs on tracker (14 years on fixed)

4) Lender AIB

5) Value of your home 650k

6) Might you trade up or overpay your mortgage? No

7) Do you face any barriers to switching? E.g. an impaired credit record, a mortgage with a warehoused portion due to a restructuring, reduced income since you took out your mortgage. No. Note, am AIB staff

8) What rates are you considering fixing at? Not sure....all fixed rates are now so high.

9) Does your house have a high BER rating which might qualify it for a lower rate? No
 
Hi Rose

Interesting that the 3% staff rate is becoming attractive again.
Could you just remind me how the Benefit in Kind is calculated on this.

Is it that there is a BIK on the difference between the rate charged - 3% and the specified rate 4%?

So if you switched the €144k to the staff rate you would be charged
3%
+ 50% (tax) on (4% -3%)

So your effective rate would be 3.5%

Brendan
 
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HI Brendan
Thanks for that. I went back to Staff Business to ask them how BIK is calculated and it is as you say, the difference between 3% and the reference rate for pref home loans as set out by government in budget each year - currently 4%. I think I will probably change over to that as I have missed the boat for any of the fixed rates now which are all over 4%.
Thanks for clarifying what the effective rate would be - I never really understood that.
Rose
 
Brendan Burgess said:
Is it that there is a BIK on the difference between the rate charged - 3% and the specified rate 4%?
Click to expand...

Are you sure there is a BIK on this at all??

It is a discount to the retail price but it is not discounted below the costs incurred by the employer (AIB) to provide it to the employee.
 
Hi OKGo

I am not sure at all as I have no direct experience of the issue.

But I got the information here and it was consistent with my understanding of the issue from some time back. But I am absolutely open to being corrected.

Preferential loans

A preferential loan is a loan made by you to your employee or former employee, or their spouse.
www.revenue.ie www.revenue.ie

Brendan
 
Yes I had also seen that link and the bit that struck me was:
If you are in the business of granting loans to the public, this is not a benefit in kind if:

the rate you charge to the public is lower than the rate set by the Department of Finance
your employee is charged at the same rate as you charge to the public.
Click to expand...

I'm also open to correction but my interpretation of that is AIB shouldn't be using the DoF preferential rate when they provide loans to the public. Maybe there is still some BIK but I don't think AIB should be using the 4% reference rate

At a minimum, @Rose11 should go back to Staff business and question them specifically on the rate and why they use it.
 
If you are in the business of granting loans to the public, this is not a benefit in kind if:

1) the rate you charge to the public is lower than the rate set by the Department of Finance
2) your employee is charged at the same rate as you charge to the public.

OK, so it's AIB which is in the business of granting loans to the public

1) The rate you charge to the public ( typically around 4% now) so it's not lower than the 4% set by the Department of Finance

2) Your employee is charged the same rate as you charge to the public - so again, this does not apply as they don't charge the public 3%,

So it seems clear that BIK does apply to the difference between 3% and 4%.

Brendan
 
The rate used to calculate BIK is set by government as they specify reference rates, and previously the reference rate was higher than rate in the market, so staff moved to market rates so no BIK. The BIK reference rate is not bank set, but by revenue.
 
So cloughy are you agreeing with my calculations?

And should AIB staff now avail of the staff rate despite the BIK?

Brendan
 
Your calculations are correct, you pay tax on the notional interest which would be 4%-3% at marginal tax, prsi, usc so effictivd circ 3.5%,

In the past circ 2008 as rates were falling AIB suggested to staff to go onto variable as the variable was less than preferential rate plus BIK.

Staff rate used only by up to a upper mortgage amount, may have changed, so could still have some at market rate, but if rates higher than 3.5%, staff rate and BIK would be less.
 
This is the reply I received from Staff Business upon querying how BIK would be calculated:

The reference rate for preferential home loans as set out by the government in the budget each year is currently 4%, therefore BIK is calculated on the difference between this rate and the staff preferential rate of 3%. Your personal taxation circumstances are then taken into consideration to determine your net Benefit in Kind (BIK) liability.
 
_OkGo_ said:
I'm also open to correction but my interpretation of that is AIB shouldn't be using the DoF preferential rate when they provide loans to the public. Maybe there is still some BIK but I don't think AIB should be using the 4% reference rate
Click to expand...
The nuance is the staff product does not have an equivalent available to the public. If it did, and rate was the same, there'd obviously be no BIK.
 
The current LTV Variable rate for mortgages <50% of 3.1% is looks better value for the likes of me for the moment.
 
Rose11 said:
The current LTV Variable rate for mortgages <50% of 3.1% is looks better value for the likes of me for the moment.
Click to expand...
I hope you don't mind a quick semi-related question - does AIB still have an upper limit of €190k on the amount allowable to staff at staff rates? They had the same limit since before the euro all the way through the crash and I wonder if they've adjusted the limit since.
 
rob oyle said:
I hope you don't mind a quick semi-related question - does AIB still have an upper limit of €190k on the amount allowable to staff at staff rates? They had the same limit since before the euro all the way through the crash and I wonder if they've adjusted the limit since.
Click to expand...
Hi there, as far as I know this limit still applies. I'm not sure many have availed of it over the past ten or so years with interest rates much lower than 3% available
 
Hi, I don’t think you can avail of any staff rates anymore on NEW mortgages. I’m not fully sure, but think it was removed a while back.
It was €190k and it was something like £150k before the euro.
Only existing staff accounts can revert back to staff rates as it is in the contract.
 
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