If you’ve got or are planning to have children, getting a mortgage can be a challenge, especially if your working patterns change.
Lots of people worry whether they’ll qualify for a mortgage whilst they’re on maternity leave, or if they decide to work part-time rather than full-time.
Here, we explain everything you need to know about mortgages and the impact having children can have on your ability to borrow.
Securing a mortgage on maternity leave
Taking maternity, paternity or shared parental leave won’t necessarily damage your chances of getting a mortgage.
Lenders will typically consider your ‘return to work’ income when carrying out their affordability assessment, so if you’re planning to go back full time they may take your pre-maternity income into account. They will however want to see a letter or other form of proof from your employer stating your return date, and confirming that your pay and hours will be the same.
Some may also want to see evidence of how you will afford your monthly mortgage payments during your period of reduced income, so they may ask for proof of savings.
If you’re not sure which lenders are likely to take your full income into account even if you’re on maternity leave, seek advice from a broker who can talk you through all the options available to you.
Don’t be tempted not to disclose the fact you’re on maternity or paternity leave. You must be up-front when you submit your mortgage application to ensure you get the right result.
Returning to work part-time
If you plan to return to work part-time after having children, this will usually mean a drop in income, which may affect the amount you’ll be able to borrow.
Bear in mind though that, as lenders take different approaches when assessing affordability, going part time doesn’t have to mean you won’t qualify for a mortgage.
Affordability checks vary from lender to lender and take account of income and outgoings. Some will allow you to borrow up to four or sometimes five times your income.
Again, it’s worth speaking to a broker who’ll be able to recommend which lenders may be able to help you based on your individual circumstances.
Being self employed
Parents who decide to become self-employed can find it tricky to get a mortgage if they’ve only recently decided to go it alone. That’s because lenders will usually want to see proof of earnings for the last two to three years, although some will consider applications from borrowers with only one year’s worth of records.
Lenders will generally accept SA302s self-assessment tax calculations and a tax overview as proof of your income. Alternatively, a lender might ask your accountant to complete a certificate certifying your income.
If you’re self-employed and going on maternity leave, you’ll need to consider the impact this will have on your business and income, and how well positioned you are to take on any additional borrowing.
If, for example, you have people working for you, it may be that there will be a relatively limited financial impact if you’re off for a few months. You may however be solely responsible for the day-to-day running of the business and could experience a significant drop in income during your maternity leave.
The impact of childcare costs
When you submit a mortgage application, as well as providing evidence of your income, you’ll need to detail all your outgoings such as your pension contributions, utility bills and childcare costs.
If your childcare costs are substantial, then this is likely to have an impact on the amount you’ll be able to borrow.
However, certain lenders are less restrictive than others with lending amounts and may be prepared to offer more generous mortgages to parents with childcare costs. A mortgage broker can let you know which lenders are likely to take a more flexible approach to your particular situation.
Do lenders take tax credits into account?
Lenders will typically take child tax credits, child benefit and working tax credits into account when assessing whether you’ll be able to afford a mortgage.
Bear in mind, however, that some lenders impose restrictions on the amount of income from benefits they’re prepared to consider, so it’s a good idea to seek advice on which might be most likely to approve your application.
Remember too, that if you are receiving benefits, lenders will want to see proof of this when you apply.
Mortgages for working parents: What you need to know