Getting a mortgage while on maternity or parental leave
Life changing events such as this might include getting married, setting up home together and planning a family – all pretty major events and decisions in anyone’s life.
But what happens when force of circumstance threatens a collision between one life changing decision and another? If you are already on maternity or parental leave, for example, what are your chances of also getting a mortgage to set up home for yourselves and your new family?
Here we discuss what you need to know.
Getting a mortgage while on maternity or parental leave
Can I get a mortgage while on maternity or parental leave?
Mortgage lenders may be in something of an ethical quandary when it comes to an application and getting a mortgage while pregnant.
On the one hand – as an article in the Guardian newspaper points out – they are not entitled to ask whether you are pregnant or on maternity or paternity leave, since this risks breaching the discrimination provisions of the Equality Act 2010.
On the other hand, any lender has a clear, necessary and perfectly reasonable duty to consider the affordability of any mortgage advance that is granted – and that means an assessment of your ongoing income and ability to maintain mortgage repayments throughout the term of the loan.
Explain your circumstances to the mortgage lender
Since you are going to be asked about your income now and in the immediate future, the onus is on you to tell any mortgage lender that you are pregnant or currently on maternity or parental leave.
It is in your interests to do so honestly, since, if it turns out that the mortgage advance is beyond your current financial means and you miss monthly repayments, you risk losing the very home which you were hoping to buy for you and your new family. It is critical, therefore, that you explain your personal circumstances to any prospective mortgage lender.
The result is that whilst there is no reason at all in principle why you should not get a mortgage while on maternity or parental leave, in practice it may prove a little more difficult than at other times – depending on the security of evidence you are able to provide about your income.
What is taken into account?
Just as with any other mortgage application, a lender wants to know not just about your current income and earnings, but also how these might be affected by future events – such as the fact that you are currently on maternity or parental leave and that within several months or so, your income needs to take in another mouth to feed and small person to care for.
Expect different lenders to approach this question in different ways. Inevitably, most are going to appreciate that during the year in which you are taking maternity or paternity leave your income may reduce appreciably (unless you are amongst the lucky few who qualify for fully-paid maternity leave).
If your regular salary is, say, £30,000 a year, then during the period of your maternity leave that annual salary might reduce to just £15,000. Any maternity leave mortgage you are offered might therefore be based on a salary of only £15,000 rather than the normal £30,000. The affordability test reduces the size of the mortgage you may be offered and the home you had your eyes on is no longer within reach.
Other mortgage lenders, however, may still be prepared to take the normal £30,000 annual salary as the basis of your steady earnings – provided you are able to show sufficient evidence of:
- your employer’s confirmation of the job you will be returning to after maternity or parental leave;
- confirmation of the date of your return to work; and
- confirmation from your employer that you will be earning at least the amount you earned before going on maternity or parental leave.
What is the difference between maternity leave and paternity leave?
It makes no difference at all to a mortgage lender whether the income-earner is on maternity or paternity leave – including those joint applications made by both parents, one or both of whom might be taking maternity and paternity leave at various times in the near future.
The lender’s interest is solely in any effect on your respective earning levels for the duration of any maternity and/or paternity leave.
Once again, it is in your own interests to be as honest and as forthcoming about these personal circumstances with any prospective mortgage lender.
Can I get a mortgage if I am self-employed and on maternity leave?
If you are self-employed, of course, there is no employer to confirm your return to work, the job that is being held open for you and the income level you may be assured to receive when you return to work.
Once again, any mortgage lender needs to test the affordability of any mortgage advance and, in this case, that means weighing up the likely impact of your absence from the business during maternity or parental leave.
If your presence is practically indispensable to the continued operation of the business, for example, your absence is a critical loss and you are likely to find it difficult to raise a mortgage. If alternative arrangements are made for others to assume your responsibilities in the interim and the business operates normally whilst you are away, then your chances of your application succeeding are enhanced.
How much can I borrow on maternity leave?
The amount you can borrow if you are pregnant or on maternity leave depends on a host of considerations that may differ from one lender to another – your income level, of course, whether you are applying for a joint mortgage with two incomes to be taken into account, the multiple of your sole or joint salaries that a lender is prepared to offer, your credit history and the size of the deposit you have available.
Your additional outgoings – on childcare costs, for example – following the birth of your child may also be taken into account.
Some lenders, for example, may be prepared to base any offer on 100% of the salary you are earning before taking maternity or parental leave, whilst others may base the calculation on only 50% of that normal income level.
Some lender’s policies may lead to mortgage offers reflecting just three times your income level, whilst other may offer up to three and a half times that level, and some may even extend the amount to up to five times your income.
Whether you are pregnant, on maternity or paternity leave, and whether you are normally in employment or are self-employed, any mortgage lender’s concerns remain exactly the same – how are your earnings impacted by your pregnancy or leave of absence from work, when will you return, and at what income level.
But there is little escaping the fact that these calculations are less than straightforward and that different lenders have policies that may significantly impact on your mortgage options.