If you’re having a baby, and especially if it’s your first, get ready for a tidal wave of life admin that will soon be coming your way! One task on your list may well be sorting a mortgage so let’s talk maternity leave and how that might affect your ability to get a mortgage or how much you can borrow.
A lot of people think that by saying that they’re going on maternity leave or revealing that they are already on maternity leave means that they won’t be able to get a mortgage.
It’s important to be clear that lenders are not allowed to discriminate against people being on maternity or having children. That said, they do need to look at your income and expenditure, and obviously having children could be a major part of this.
Each lender looks at maternity pay differently
Each lender will assess your maternity income in different ways but they will all be likely to assume that if you are on Maternity Leave or about to start it, your income will be about to drop. However, lenders do recognise that the maternity leave is only going to last for a short period of time, whereas the mortgage is going to last for a lot longer. Lenders will look at your pre-maternity income. So, if you’re going to go back to work on the same terms and the same hours as you did prior to starting maternity, then a lender may simply ask for your latest payslip before you went on maternity leave to clarify the income that you will be returning to. Sometimes a lender may ask for you to write a letter to state that you’re going back on the same hours as before, or they might actually write to your employer to get a reference to confirm that the discussions have been had and that the employer is expecting you back on the same terms that you previously left.
What if you plan to work less hours after maternity leave?
Of course you maybe planning to go back to work on reduced or part time hours. And that’s still fine. What a lender would do in that instance is pro rata your salary. So if you’re going to be going back on three days a week rather than the full five, then they’ll simply write to your employer to get clarification on the amount of hours you’re going back on and crucially the income that that will generate, and that’s the figure they’ll use for affordability going forward.
Mortgage lenders will look at your monthly spending
Don’t forget affordability. From a lender’s perspective, having children means more mouths to feed, which means that there’s less income leftover each month to pay the mortgage. Inevitably grocery costs will likely increase and there may be new childcare costs to consider. Lenders will look carefully at your monthly budget planner to ensure that you have factored in any ‘future’ costs that having a child will incur. For example, if you have stated that you will be returning to work, you will need to demonstrate that you have considered the cost of childcare.
It’s important to mention that if a Lender can see a potential gap in your income, they may wish to look at what savings you have in place to cover the shortfall. As long as you can demonstrate that you have the funds there, there shouldn’t be a problem.
Paternity leave can also affect your mortgage application
Let’s not forget that it’s not just mum’s who can take time off when a baby is due. Paternity leave and parental leave can be taken in an ever-increasing variety of ways. Essentially, when it comes to getting a mortgage, everything we’ve said here about maternity leave would be applicable to any type of long term parental leave. If the household income is impacted over a period of time, the lender will need to know about it AND they will need to know what is expected to happen to that income after the parental leave has been taken.
The crucial thing is not to panic, do your research, find the right lender, and know the terms in which you are going back to work on. If you do want to chat about it further, give us a call on 0330 122 9920 or book an appointment with one of our friendly advisors.
