Applying for a mortgage: childcare costs ‘affecting chances of success’

Will childcare costs affect your chance of getting a mortgage? Many families are finding this to be the case when making a mortgage application.

Parents feel they are being forced to lie in order to successfully apply for a mortgage, according to new research.

One in six families found childcare costs to be their downfall when making a mortgage application.

Lenders now take a close look at your outgoings when assessing if you can afford a mortgage. This mortgage affordability test includes nursery, day care or nanny costs.

If the mortgage lender thinks your outgoings are too high, they can decide you won’t be able to afford to repay the mortgage.

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Financial double-whammy

Research by price comparison site uSwitch.com has found that 17% of families were offered a smaller loan or had their mortgage application rejected completely because of their childcare costs.

The problem is that at the same time as lenders have started factoring in childcare costs when assessing your mortgage application those costs have shot upwards.

The cost of childcare has risen by 38% over the past five years.

In order to get a mortgage many parents are now resorting to lying on their application with 68% saying they hid the true cost of childcare from their lender.

“Parents are being stung with a financial double whammy. Not only are they having to cope with sky-high childcare costs, but this burden is also impacting their ability to secure the best mortgage deal,” says Tashema Jackson, spokesperson at uSwitch.com.

“It’s worrying that many feel under pressure to conceal these costs during the mortgage application process, as this may have a severe impact on their ability to meet repayments in the future.”

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Asking for help

Many parents are also desperately trying to cut their childcare costs in the run up to a mortgage application.

Three in 10 have turned to grandparents for free childcare, while 27% asked friends to do the school run for them and 23% reduced their working hours.

Over half of the parents who changed their childcare arrangements before applying for a mortgage did so because they were worried the extra expenditure would mean they weren’t able to secure the best mortgage rates or might result in them being rejected.

The Council of Mortgage Lenders (CML) defended its members stating that all outgoing costs have to be taken into account when assessing a mortgage application.

“Lenders must take into account all the key financial commitments of borrowers.

That could mean that those who have to pay for childcare may not be able to borrow as much as others with a similar income who do not have these commitments,” says a spokesperson for the CML.

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Mortgage affordability failures

The research also found that lenders are failing to properly assess childcare costs, despite using them as a reason to reject an application.

Over 40% of the families surveyed reported that their lender didn’t ask or factor in the age of their children.

Yet, this is crucial as it may mean that childcare costs are going to reduce in the near future.

Only 39% of parents said they were asked how their childcare costs may change as their children got older.

“While lenders have a responsibility to make sure people only borrow within their means and can afford future repayments, they also need to reassure homebuyers that their whole financial picture is being considered,” says Jackson.

“Taking into account the ages of children during the application process will help reassure mortgage applicants that they are not being unfairly penalised for costs which are relatively short term.”