Maternity leave and childcare costs dash hopes for mortgages

Maternity leave and childcare costs could destroy hopes for mortgage lending, applicants with young families have been warned, as the gap between house prices and affordability continues to rise.

House prices have risen exponentially in the last 18 months, up almost 10 per cent in the 12 months to October and property prices rising by an average of £30,000 since the start of the pandemic, according to Nationwide.

Yet when you buy a house there are many hoops to jump through on top of the deposit. These include your income, your credit history, and for anyone expecting or with children, their costs will be included.

When you are on maternity or paternity leave, your salary will usually drop as well.

If you are applying for a mortgage, a lender will usually look at your regular salary level, instead of the reduced amount you’re currently earning. However, this can vary depending on the lender and the type of work you do.

Those in full-time positions should be able to use confirmation from their employer to show their usual earnings.

But for self-employed parents, this can be harder to show. As a self-employed worker, you’ll have to give evidence of your annual accounts and if during one of these years you were on leave, it could have an impact on the overall amount you’re able to borrow.

Lenders aren’t allowed to discriminate against pregnant women or mothers, as outlined in the Equality Act 2010, and they can’t ask someone if they are pregnant or on maternity leave.

However, if your earnings while on maternity leave are factored into any lending decisions, as they can be with self-employed workers, surely this could be argued this is a form of discrimination towards these women?

While this issue could affect men or women, it’s usually women who take longer off work when having a child, therefore they are more likely to see a drop in their earnings.

It’s also women who are more likely to choose self-employed work when they have children, due to high childcare costs and the inflexibility of some employers.

Between 2008 and 2016, the number of female freelancers increased by 55 per cent, compared to a 36 per cent growth for men, while the number of mothers working as freelancers increased by 79 per cent to a total of 302,000, according to data from IPSE.

David Hollingworth, spokesperson for L&C Mortgages, said: “Lenders must consider whether a borrower will be able to afford their mortgage not only at outset but also on an ongoing basis.

“To do that they will look at income and outgoings in reaching a decision on how much is affordable. Lenders will typically be able to take account of the return to work income so those intending to return to work on the same basis should be able to use that income.

“Self-employed borrowers typically need to demonstrate a couple of years of income track record, so a dip in income could affect what the lender can take into account when deciding how much they can lend.”

The cost of childcare can also impact a mortgage application.

The UK has the second-highest childcare costs in the world, meaning parents have to shell out a yearly average of £14,000 per pre-school child, according to the Organisation for Economic Co-operation and Development (OECD).

As the costs are so high, it means many – mostly women, though – either give up their jobs or end up basically paying to return to work.

When you apply for a mortgage, a lender will look at your current financial circumstances to see if you can comfortably repay a loan. This includes your regular income and outgoings, including childcare costs.

“[This] would need to be factored into affordability where that would apply. Given childcare costs can be so substantial, this could clearly have an impact on the disposable income and therefore on the borrowing amount available,” adds Hollingworth.

The issue becomes even more troubling for single mothers, those without a partner who may be in full-time employment to balance out a mortgage application.

If you’re spending an average of 35 per cent on childcare alone, as many parents are, you’re not going to be able to access the best mortgage rates, says mortgage broker Habito.

Rosie Fish, a mortgage specialist at Habito, said: “In most cases childcare is the single biggest commitment aside from their housing costs, which means that affordability would increase if childcare costs were reduced.

“It can vary lender to lender, but both Natwest and Santander seem to be the better lenders when you have childcare costs.”

It’s women who are more likely to reduce their working hours when having a child and two-thirds of mothers said they work fewer hours than they would like because of childcare costs, according to research from Pregnant Then Screwed.

It launched a campaign for childcare costs to be debated by parliament recently. The response after a debate was the following: “The government is not currently planning a review of the childcare system. Support is available to help with childcare costs, and the government monitors the sustainability of childcare providers.”