How pregnancy and maternity leave affect your mortgage
Going on maternity leave and not sure how it will affect your mortgage? Donna Ferguson reveals all.
How will pregnancy affect your mortgage? You might think one has nothing to do with the other. But, for most couples, getting pregnant significantly reduces how much money you have in your pocket - and not just because babies are expensive little beggars!
The fact is, unless the expectant mother is very lucky with her employer or she wants to go back to work very soon after the birth, most new parents suffer some sort of loss of household income during the maternity leave.
What does this mean for your mortgage? Unfortunately, even if you think that, despite this reduction in your income, the two of you are still be able to afford your mortgage payments, a mortgage lender may not agree. This can be particularly problematic if you try to get a new mortgage while pregnant or on maternity leave, as lenders may not be willing to lend you as much as they did before. So you cannot remortgage or move house. And unfortunately, many couples find they need to do just that at exactly this time because - you’ve guessed it - they need a bigger home to bring up their screaming, poo-ing little darling!
The good news is, not all mortgage lenders treat the income of pregnant and new mothers in the same way - some are more willing to overlook a temporary drop in salary than others.
Mortgage lenders and maternity leave
So how do different mortgage lenders across the UK view maternity leave? Here’s a sample of ‘pregnancy-friendly’ lenders who will treat you as if you are still earning the income you had before you went on maternity leave. However, you will need to provide a letter from your employer confirming the date you will return to work and your usual salary, and there may be other special conditions too (specified below):
- Cambridge Building Society
- Coventry - as long as you are restarting your job within the next few weeks
- Halifax - as long as you are restarting your job within the next three months
- Hinckley & Rugby
- NatWest - needs last payslip before you went on maternity leave
- Principality Building Society
- Scottish Widows
If your lender isn’t on this list, don’t despair. Some lenders, such as Northern Rock and First Direct, like to make decisions on a case-by-case basis, so it’s always worth checking. First Direct, for example, will take into account your intended return to work date, what your intended working hours are, what your salary will be and how your mortgage will be funded throughout the maternity period. It will also take childcare costs into account when calculating whether you can afford the mortgage.
This might seem a bit over-the top, but lenders have good reasons for requesting this sort of information. Nowadays, following the credit crunch, lenders are more conscious than ever of the need to lend responsibly. The last thing they should do is lend you too much money, which means you struggle to pay for vital costs like childcare.
Having said that, if you’re not looking to borrow more money, often your existing lender will look on your change of circumstances more kindly than a new lender. So if your current deal comes to an end and all you want to do switch to a new rate, it shouldn’t cause too much of a problem. Many lenders don’t re-underwrite the case and will simply give you a new deal without reassessing your affordability.
I need a bigger mortgage
Unfortunately, if you need to increase your borrowing - perhaps for a bigger property, or to make home improvements to the baby's room - you may find it more difficult than before you got pregnant. If your lender has genuine concerns that the bigger mortgage will not be affordable, there's likely to be a good reason and you might have to reassess your plans. Of course, they are likely to be most concerned about the drop in your income, so if you are desperate, you could change the date that you are due to return to work if you give your employer 28 days’ notice - an earlier return date in a letter from your employer could swing things in your favour.
You should also bear in mind that, to make a larger mortgage more affordable, you could choose to spread your repayments over a longer term. While this will cost more in the long run, it will make the mortgage more affordable every month. You could always look to reduce the term once you return to work.
Some lenders, such as Halifax and Nationwide, also offer flexible features with their mortgages. For example, you may be able to take a ‘payment holiday’ - where you can take a short break of a month or two or even three from paying your mortgage (again this will cost you more interest in the long run). Another popular thing to do is to overpay before you go on maternity leave and then underpay while your household income is reduced.
Ideally, you should talk your options through with your mortgage broker before deciding what to do.