Getting a mortgage on maternity leave
Published 15th August 2017
Pete answers as one of the maternity leave mortgage specialists, taking you through every possible scenario when applying for a mortgage when on maternity leave. Pete is an expert in his field and featured in The Guardian's article; Women warned to beware pregnancy pitfalls when applying for a mortgage.
- How does maternity leave affect mortgage applications?
- Should I tell the lender if I'm on maternity leave?
- What is the difference between maternity leave and paternity leave?
- Should I tell the mortgage lender if I'm pregnant?
- What's the most I can borrow on maternity leave?
- I'm self-employed on maternity leave
- What if I've got bad credit?
- How much deposit do I need?
How does maternity leave affect mortgage applications?
Getting a mortgage while on maternity leave can be tricky. Maternity leave affects mortgage applications because most lenders will assume the applicants’ income will decrease when they go on maternity leave. So, if you apply for a mortgage and your normal salary is say, £30,000 a year, when you’re on maternity leave it is likely to drop down considerably - if not for a short time, then for the whole time that you’re away from work - so most lenders won't base lending on the full £30,000 and will deem the mortgage not affordable whilst you’re on leave.
If you are currently applying for a mortgage on maternity leave then it’s likely the lender won’t take your full income into account, however there are lenders out there who are more than happy to consider your full salary. Just as long as you can get evidence from your employer, like a reference or a letter confirming the following:
- That you’ll definitely be going back to work
- The projected date you’ll be going back,
- The terms of work you’ll be going back on. i.e. if your hours and salary are going to be the same. If not then what will your income be? The lenders accepting maternity income will likely only be happy to lend on that basis. If full hours and normal pre-leave income, then great. Lenders are not likely to lend based on full pre-maternity leave income, if you employer confirms you are going back part time or on less money.
Should I tell the lender if I'm on maternity leave?
If you are on maternity leave, then you need to tell the lender. They may not ask you directly "are you on maternity leave?", but they will ask for payslips, which may well show your maternity pay. In addition, it is important to note that on almost every application form you will be asked: ‘do you know of any material changes to your circumstances that will impact the ability to repay the mortgage?’ Maternity leave and a lower income is definitely one of those material changes.
Applying for a mortgage on maternity leave and failing to mention that very fact at the time could potentially be deemed as non-disclosure and even mortgage fraud. Therefore, it's important that you are totally upfront and honest about everything to do with your application. If you don't meet the lender's policy and they decline you, then so be it. Thankfully, there are lenders out there that are happy to lend.
What is the difference between maternity leave and paternity leave?
The difference between maternity leave and paternity leave, on a basic level, is of course that maternity refers to the mother, and paternity the father. In the eyes of the lender it makes very little difference. For example, if you're on paternity leave pay and your income is less - therefore potentially impacting your ability to repay the loan - the lender will want to know about it. As mentioned above, the lender will ask "are there any material changes to your income that may impact your ability to repay the loan?" If you say ‘yes’, they’ll ask what that material change is. Therefore, disclosing that you're on paternity leave, where income is going to decrease, is imperative. Most lenders that accept people on maternity leave will enforce the same rules for paternity leave. In short, when applying for a mortgage on maternity or paternity leave – the same rules apply.
Should I tell the mortgage lender if I'm pregnant?
If you’re applying for a mortgage when pregnant the lender will need to know. They won't ask the question directly on your application form but again as above, you will be asked to name any material changes that could affect paying back the loan, and pregnancy is one of the material changes, so you need to disclose that to the lender. Of course, as you've not yet started maternity leave it’s a grey area as to whether potential parents need to disclose not only the fact that they'll be away from work, but also that they’ll then have a new dependent, which can further impact affordability. Because that dependent doesn't yet exist, not every lender will have the same opinion on whether this needs disclosing, and even at which point in time you are supposed to disclose it - should this be at point of conception? week 4? week 12? week 26? At birth?...
The lender's underwriters will be able to advise more on this, as when getting a mortgage when pregnant it's always important to be upfront and honest about everything to ensure you fit with their policy. This is why using the right broker is vital.
What's the most I can borrow on maternity leave?
When you’re on maternity leave the most you can borrow will differ from lender to lender. Some will take 50% of your total income, some will not take any of it, and some will lend based on the 100% of your normal salary. Therefore, what you need to do is find out which of the lenders that use 100% of your normal salary is the most generous in terms of how much they will lend, because every lender is different when they assess affordability. Some have rules where they will only lend three times your income; some three and a half times your joint income; and some of them lend up to five times your income. Credit history and deposit size will also impact on your borrowing ability.
The only way of knowing what banks will lend is to speak to a specialist because they will know how each lender is likely to act, and they’ll match you with the best one. For instance, if you’re self-employed with one year’s accounts, there are only a handful of lenders that will accept that. And if you’re looking to borrow based on that income, plus the fact that another party on your application is going to be on maternity leave, there will be a limited number of lenders you can go to to be accepted. Similarly, if you’ve got adverse credit, only a certain number of lenders will accept you, depending on what your issues and circumstances are, so it’s important that you speak to a financial expert who will put you in touch with the right lender from the start. The right lender for you will assess your complete situation and not just your maternity leave status.
Getting a mortgage while on maternity leave isn’t always an easy task, but there are some lenders who will look at your full income and lend between four and five times your income as joint borrowers. For example if both named applicants earn £20,000 and one is on maternity leave, some lenders will consider your joint income to be £40,000, so as long as you can evidence that whoever is going to be off work - on maternity or paternity leave - will be going back on the same terms of employment. In this scenario with a £40,000 joint income, you’ll be able to borrow between £160,000 and £200,000 depending on circumstances.
I'm self-employed on maternity leave
If you’re self-employed and going on maternity leave then the lenders will want to know what impact this is going to have on your business. For instance, most banks will lend based on the figures that you have shown on your year-end accounts or your SA302's, which obviously won't state what your future income will be. If you declare that you are pregnant or your partner is pregnant and therefore going to be on maternity/paternity leave, this is quite clearly going to affect how much time you can spend on or at your business and in turn affect your future income.
The effect that may have on your application will depend on your level of day-to-day involvement in the business. If the business will not function without you being there, then the impact on your income is going to be significant. However, if you own a business and there are employees that will look after the business for you, then the impact on the business and therefore your income will be less significant.
In the latter instance, the lending underwriters may take a view that your income will not be affected by your self-employed maternity leave, but you will need to satisfy any further questions the underwriter has in regards to that. It’s important to remember that every lender is different so speaking to a specialist who knows what every lender offers is important to ensure you're matched with the best lender and the best deals.
What if I've got bad credit?
If you're going on maternity leave and you've bad credit, you may find getting a mortgage much more difficult. Unfortunately, lenders that accept your full pre-maternity income will typically be the type of lender that won't accept adverse credit. There are many lenders that accept adverse credit, depending on your deposit size and other factors. Some of them will accept cases as severe as bankruptcy, and with as little deposit as 15%, depending on how long ago your bankruptcy was. However, those types of lender are not likely to accept your full income when on maternity leave and to be approved it will really be on a case-by-case basis.
How much deposit do I need?
The amount of deposit you'll need to get a mortgage when pregnant or on maternity leave, really depends on your overall situation. Typically, the larger the deposit and more time that has passed since those bad credit issues happened - the higher the chance of getting a mortgage using your maternity leave income. You have a much better case borrowing at 50% loan to value (LTV) than if you were borrowing at 95% LTV.
Getting a mortgage whilst on maternity leave is complicated but not impossible. It's in your best interests to speak to a specialist who can match your situation to a willing lender.
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