How to get a home loan on maternity or parental leave
Life is full of firsts. For many, buying your first house and having your first child are among these. But when you’re on maternity leave and trying to get into the property market, things can get a bit complicated.
If you’re currently on maternity leave and wondering what impact this could have on securing your dream home, look no further! We’ve done the research for you so that you can learn the ins and outs of applying for a home loan while on maternity leave.
Can I get a home loan while on maternity leave?
When on maternity leave, you will likely be on minimal (or no) income, which could affect your ability to make repayments. Due to this, many banks and lenders will consider you a high-risk applicant and won’t want to approve your application.
On the other hand, other lenders could be more accommodating. Whilst some might deny your application, others will still let you borrow a ‘standard’ amount – 80% of the home’s value (with a 20% deposit). Or in some cases, you might even be able to borrow more. The trick is to have your papers in order and to find the right lender.
To be approved, you will still need to be a financially sound applicant. They will assess your income, assets and liabilities – just like they would with any other home loan applicant. They will also take into consideration whether your maternity leave is paid or unpaid, as well as the date you plan to return to work. In general, paid is better than unpaid, and most lenders would like to see evidence that you will return to work within 12 months.
Does pregnancy affect my mortgage application?
Whether or not being on maternity leave will affect your home loan application largely depends on the bank or lender – and the rest comes down to common-sense. It’s simply a matter of being honest with yourself about your situation; if while on maternity leave you have doubts about being able to make your future home loan repayments, it is extremely unlikely that a lender would think any differently.
However, if your financial situation is secure and you can easily demonstrate that despite being on a minimal income you will be able to meet repayments (without mortgage stress), you have a much greater chance of getting your home loan approved.
When applying for a loan whilst on maternity leave, there is some documentation your lender will require to properly assess your application. For example, you will need to provide documentation that details the date you will leave work, as well as your anticipated date of return. You will also need old payslips as well as documents that detail your living expenses (such as utilities, childcare, healthcare, etc). When assessing your home loan application, lenders will also assess the length of your maternity leave – and from a lender’s perspective, they usually look for no more than 12 months.
Do I have to tell my mortgage lender I’m pregnant?
Lenders are not allowed to ask whether you are pregnant or on maternity leave when you apply for a mortgage, as doing so could potentially be considered discriminatory under the Equality Act. In saying this, under the National Consumer Credit Protection Act, by law they are required to make sure you can meet your repayments without significant financial hardship. This means that they will ask you whether you anticipate any changes to your circumstances in the near future.
Since being on maternity leave would affect your income, and the costs associated with a baby would also increase your expenses – not to mention the ongoing costs of caring for a child – your ability to make mortgage repayments would likely be affected.
At the end of the day, if you default on your home loan, you’re going to be the most affected, so it is in your best interest to be honest with your mortgage lender.
Does having a child affect your mortgage?
Having dependents increases your expenses and decreases your disposable income, meaning that your borrowing power is not going to be as high as if you were sans kiddies.
Most lenders will require you to provide an estimate of your living expenses. In most cases, they will also calculate your living expenses using the Household Expenditure Method (HEM). This is to determine whether you are below or above the average cost of living. Out of these two methods of estimating your living expenses, it is usually whichever is higher that will go into the calculation of your borrowing power.
Can I remortgage on maternity leave?
While you can remortgage while on maternity leave, it will depend on your personal circumstances as to how successful this is. When on maternity leave, it is likely you are on half pay (or maybe even no pay at all). During the application process, most lenders will consider your income at the time of application, and not your planned return to work income. Depending on your financial situation, this could derail the re-mortgage process.
In some cases, lenders will look more favourably upon your application if you are planning to return to work within three months. In this instance, they will consider your ‘normal’ income, so long as you can provide a signed letter from your employer citing your income as well as your anticipated date of return to work.
The addition of a dependent will also have an impact on your remortgage assessment, as it will increase your living expenses. When planning to refinance while on maternity leave, it is vital that you have your finances in order and have considered all expenses. A good strategy could be to make bigger mortgage repayments before going on leave or to start a savings account. This can help to prove that you can handle the added financial burden. As home loan assessments can vary from lender-to-lender, it is best to ask around before making your decision.
Can I apply for a repayment holiday while on maternity leave?
Some banks and lenders have home loan products that allow you to take a ‘holiday’ from your repayments – allowing them to be reduced or put on hold for a period of time. Asking about these mortgage products could be a good option if you don’t think you are going to be able to meet your mortgage repayments while you are on maternity leave.
The catch with repayment holidays is that among the mortgage products that allow this, most will require that you have already had your home loan for at least a year. This would mean that those who are applying for their first mortgage while on maternity leave would not be eligible for a repayment holiday. If you are in this boat, you are probably better off concentrating on increasing your savings and waiting until you are back at work before you try applying for a home loan again.
In some cases, the mortgage lender will also require that your mortgage is still paid off within the original term. If you take a repayment holiday, this means that when you do go back to regular repayments, you will be paying more to make up for the lost time.
Need more information?
If you need further information, get in touch today to discuss your ability to avoid LMI and how we can help you obtain a competitive home loan.