Whether you're already expecting a child, or planning for a family in the future, knowing how it could impact your mortgage application is an important financial consideration.
It is possible to get a mortgage, or remortgage, whilst you're on maternity or paternity leave, but you may find it more difficult than normal. Lenders are likely to ask for additional evidence of your future salary, and may conduct extra affordability tests before agreeing to lend to you.
In this article we look at how the mortgage application process works for parents-to-be, and cover some of the extra things you should bear in mind before you take this next step in your financial future.
Yes, getting a mortgage on maternity leave is possible.
However, you may find that mortgage lenders are likely to be more cautious when it comes to working out how much you can afford to borrow, and what you'll be able to pay back each month.
In many cases there will be caveats or additional hoops to jump through in order to qualify for a loan, but that doesn't mean it's impossible to find a good deal. For example, many lenders will require extra written confirmation of your future income. Some may even use the amount you'll get as maternity pay for affordability tests.
The process for getting a mortgage whilst you're on parental leave is very similar to applying for a mortgage normally. You can either apply to the lender directly, or work with a broker to help you find the best deal.
You'll need to provide information about your income - general three months of payslips - and the property you'd like to buy, along with documents proving your identity, such as a driving license or passport.
If you're on maternity or parental leave, or shortly about to start it, you should also be prepared to provide additional information about your circumstances to support your application. Most lenders will want to see a reference or letter from your employer as part of your mortgage application. This should provide written confirmation that you're going to be returning to work, along with the date and terms of the return - for example, your hours and pay.
Some lenders may also do additional affordability checks as part of your mortgage application. This could include looking at the amount you'll be paid during your maternity leave, and assessing whether you'll be able to afford the monthly repayments - rather than simply using your normal salary.
As a general rule, mortgage lenders will let you borrow around 4.5 times your annual salary. So if you're earning £30,000 a year, you'll be eligible to borrow around £135,000.
When you're on maternity leave, lenders will usually make their offer based on the amount you'll be earning when you return to work. If you have evidence that you'll be working the same hours, and earning your normal salary when you return, you should be able to borrow the same amount as you would have before you went on maternity leave.
If you're making a joint application, you should expect to be able to borrow between 4 and 5 times your combined income, based on your normal earnings.
Top tip: Just as with any other mortgage application, you're more likely to get the best rates if you have a large deposit.
A mortgage lender should never ask directly if you're having a child. However, during the application process you will be asked to mention any 'material changes' that could affect your ability to repay your loan.
Expecting a child should be considered a 'material change'. Not only is your income likely to decrease for the period of time that you're on maternity leave, you'll also have to consider how expensive childcare will be.
If you're not yet on maternity leave, but are expecting to be in the near future, it's a bit of a grey area. While having a child will impact the amount you're able to afford to pay each month, the amount you'll be spending on childcare costs is still quite speculative at this stage. If you're unsure what to disclose about your pregnancy, it's best to talk to an independent mortgage advice.
As a general rule, it's best to be as open and honest as possible in your mortgage applications. Being on maternity leave doesn't mean you won't get a mortgage, but being found providing false information will guarantee you get declined. Hiding the fact you're pregnant is not worth the risk of jeopardising getting a mortgage, or worse being accused of mortgage fraud.
While getting a mortgage on maternity leave is possible, it's worth taking some time to think about the other ways parental leave and having a child will impact you. The most important things to bear in mind include:
While maternity leave policies are generally improving across the UK, many people are still only offered the statutory legal minimum. Statutory Maternity Pay (SMP) in the UK is paid for up to 39 weeks. You'll get: 90% of your average weekly earnings (before tax) for the first 6 weeks of leave. Then you'll receive £151.97 or 90% of your average weekly earnings (whichever is lower) for the next 33 weeks. While you may be eligible for a mortgage during your maternity leave, it's important to consider whether you'll actually be able to keep up repayments on your mortgage during this period of reduced income. Compare how much you'll pay each month to your current outgoings to see how financially viable taking on a mortgage will be.
For many people the £151.97 SMP is not enough to cover their monthly mortgage payments - on top of food, bills, and other everyday costs. If your employer does not offer a more comprehensive benefits package, you may have to use savings to cover any shortfall. Remember, if you're not able to keep up with your repayments your home may be repossessed.
In terms of getting a mortgage, there's not much difference to lenders between maternity and paternity leave, other than the length of time you're likely to be receiving a lower income.
While it is possible to get a mortgage on maternity leave, there are extra things to consider, and you may find some lenders reluctant to lend the full amount you need. In situations like this it can be work getting support from a mortgage broker. Mortgage brokers are able to provide specialist information about which products you're eligible for, so you can decide who is the right lender for you. They'll also reduce the likelihood that you'll have to make multiple applications - which will help protect your credit score. There are a number of free online mortgage brokers that offer a good place to start your search. We cover them in more detail, here.
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