Expecting a new baby is hugely exciting and of course, can be quite expensive too! Not only is there all the new baby equipment to buy but some couples decide to move house to get an extra bedroom, a garden, be near family, or a good school catchment area.
Deciding to buy a home before or during maternity or paternity leave gives rise to many questions. Can you get a mortgage on maternity or paternity leave? Will you be able to access the same rates as everyone else? Will lenders still take two salaries into consideration? The answer to all of these questions is yes – as long as you can demonstrate that you can afford it.
The big question.
Whether you are submitting a mortgage application on a new property or remortgaging your existing home, the lender will ask you one quite simple but very significant question: ‘Will your circumstances be changing in any material way that might impact your ability to pay your mortgage?’
It’s really important to answer this question honestly in order to ensure you don’t find yourself in the situation of being unable to keep up with repayments in the future.
This question will also be followed up with more detailed probing about how long you intend to spend on maternity or paternity leave, what the terms of your leave are, and whether you intend to return to work. ‘Terms of leave’ means how much you are being paid and for how long. The lender may even write to your employer to confirm the terms of your leave and employment.
If your earnings are reduced over the maternity or paternity period, the provider may need to see evidence that you have some savings to help you afford the repayments in the short term. These funds will need to be easily accessible and not tied up in another property or a notice savings account. It’s important to note that these savings will only be considered for the period of maternity or paternity leave itself before the applicant returns to their normal working patterns. If one or more applicant has or intends to reduce their hours and therefore earns less, then it is this revised income that will be used for the affordability assessment.
Mortgages after maternity or paternity leave.
Where parents are returning to work, lenders may also ask about the cost of future childcare, as this has an impact on the overall household expenditure. If this affects you, you’ll be expected to know about anticipated costs and have a plan in place for affording them.
Child Benefit can be taken into account for mortgage affordability purposes, particularly for new babies and younger children. However, it’s worth understanding that most lenders will only take Child Benefit into account if children are under the age of eleven. This is because Child Benefit can cease at 16 (dependent on the education status of the child) so the lender will want to know that the applicant has at least five years of this income remaining in order to use them for affordability purposes.
Maintenance costs and mortgages.
Maintenance payments (such as the arrangements made between one partner and another following a divorce or separation) can also sometimes be taken into consideration as long as it is a formal agreement backed by a Court Order or Child Maintenance Services. Similar to Child Benefit above, this income needs to have a significant period left to run to be considered for a mortgage application.
If you have adopted a child then you should be treated in the same way and subject to the same affordability rules as those on maternity or paternity leave. This is because adoption leave was broadly brought in line with maternity and paternity leave in the UK in 2003.
Foster income may be considered by some mortgage providers but it is very much lender specific and may depend on whether the household has other sources of income.
Using a mortgage broker.
Many people who are on or about to be on maternity, paternity, or adoption leave, choose to use a mortgage broker to help them identify which mortgage is most suited to their circumstances. If you decide to go down this route, it is the mortgage broker who will ask many of the questions about your maternity or paternity leave, whether you intend to return to work, etc.
Self employed, maternity leave, and mortgages.
If you are self employed, you might have a slightly more unusual maternity or paternity leave, working ad-hoc hours, or returning to work quickly to minimise disruption to your business. Applying for a mortgage under these circumstances is possible but this type of applicant would benefit from speaking to a broker who could help direct them toward lenders who are most likely to accept their case.
Yes, you can get a mortgage on maternity leave!
Lenders should not penalise anyone for being on maternity, paternity, or adoption leave but they may need to do extra due diligence to ensure they truly understand the applicant’s income and expenditure levels now and in the future.
It can be helpful to consider a mortgage provider who undertakes manual underwriting because they also have more scope to consider an application on its individual merit and won’t just generate a computer-based response.
So if you want the short answer – yes you can get a mortgage while being on maternity leave. You might need to look beyond high street lenders and secondly, you will need to demonstrate that you can afford your mortgage repayments now and in the future, but it is possible.
Bringing a new baby home is one of the happiest days of a new parent’s life and there are plenty of lenders and brokers out there to help make this dream a reality.