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.
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):
- Abbey
- Accord
- Aldemore
- 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
- Ipswich
- Leeds
- Nationwide
- NatWest - needs last payslip before you went on maternity leave
- Nottingham
- Principality Building Society
- Scottish Widows
- Skipton
- Woolwich
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.
It’s easy to underestimate how stretched you will be after your baby is born, especially as it’s not just extra expenses that you have to account for in your budget but lost income too.
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.
Good luck!
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Comments
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I applied for a new mortgage today with the woolwich as I have always banked with barclays. I am currently living in rented accommodation after selling my home and paying twice per month what the mortgage I was requesting would cost. After spending at least 20 minutes going through the application (which was going swimmingly it seemed) I was then told as soon as being on maternity leave was mentioned they would not progress a mortgage application until I return to work, in case I decide not to return. I explained that I am the only earner and am also contractually obliged to return to work in less than 5 months time and they categorically said they will not pursue my application and the guy I was dealing with went from being very helpful to clearly not wanting to entertain any further discussion. I disagree that the Woolwich are pregnancy friendly and will not be recommending them to anyone else. On a happier note however I then contacted Nationwide who have a far more sensible approach of basing it on your current outgoings and your salary when back to work and have a mortgage in principal set up and ready to go. I have to say I didn't feel the slightest bit prejudiced against with Nationwde and they couldn't be more helpful.
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We did have issues with First Direct. We had an agreement in principle for them to extend our mortgage, but when we rang up to say we'd found a house and wanted to borrow 30k less than the maximum they'd agreed to lend they asked if my wife was pregnant. They then explained they have a policy of refusing to lend to any pregnant women. First Direct required a letter confirming she'd return to work within 3 months of the start of the mortgage. As she was 2 1/2 months away from the due date we could provide no such letter. I phoned back mentioning the financial ombudsman's 2004 ruling** that this was sex discrimination, and stating that and they modified their position. They said they would calculate my wife's salary by looking at her lowest salary during the maternity leave. She had 6 months full pay and then would drop to 2 months half pay before returning to work. First Direct said that at half pay they might be able to lend us the required amount a 4x multiplier. After a while on hold we were told that they would lend a 4x multiplier but not to us as by then we'd have children and so would not meet their affordability criteria. So they refused us a mortgage because for 2 months while my wife's was on maternity leave her salary would drop to a level they'd lend to a childless couple but not to a couple with children because of childcare costs [I]while my wife was on maternity leave[/I]. In addition we already had savings with them to pay the new mortgage for 2 years upfront. We had to buy ourselves out of the existing mortgage with First Direct and pay to arrange an inferior mortgage with another company which cost us 5k. My wife is now back at work and her total drop in earnings was less than the 5k First Direct cost us. We're still pursuing First Direct for compensation via the Financial Ombudsman. http://www.financial-ombudsman.org.uk/publications/ombudsman-news/37/banking-equal-access.htm section 37/3 [I]"The firm refused to give Ms Y a mortgage, because she was pregnant. Nowadays all women have the right to return to work after maternity leave, and many do. So the firm’s practice was discriminatory on the grounds of sex."[/I]
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We had no issues remortgaging to First Direct early this year, while my wife was on maternity leave. We made sure we applied before her income dropped to just SMP, but disclosed the fact she was on maternity leave. We'd only recently moved (using a fee-free tracker mortgage) so made sure we had been published on the Electoral Roll before applying. Fixing for 5 years at 3.89% (only 1.1% above the tracker rate) was a no-brainer in our situation, with the likely childcare costs and possible additional arrivals in the next few years, now that our house has room for expansion! Trust me, with the distrupted sleep that littleun's bring, you don't want to be worrying about what the BoE are going to do with interest rates.
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18 July 2012