How will maternity or parental leave affect my mortgage application?


Barlow Irvin Financial Services Director, Gary Oxborough, talks about how maternity/paternity leave can affect your mortgage application and what you need to consider.

Often, buying a new home coincides with starting or growing your family. The question we get asked a lot is “how will maternity or paternity leave affect a mortgage application?”

The good news is that, if you are employed, most lenders will calculate how much you can borrow based on your income when you return to work. They will usually require a letter from your employer to confirm your return-to-work date and  the salary you will be earning at that point. If you have arranged to move to part-time, then this is the income they will use in their affordability calculators. You should always consider any drop in income like this when looking at a mortgage to ensure that you can afford the repayments, especially when you have a new baby in the household, which will increase your outgoings.

If you are self-employed, the process is a little different. In many cases, lenders will ask for your previous years’ income, so this normally wouldn’t be affected by you currently being away from work. However, lenders will often also require sight of current business bank statements, so if these show a drop in your income, this can cause issues with a mortgage application. The most common time that parental leave becomes an issue for self-employed mortgage applicants is when the reduced income shows in the previous years’ accounts. As most lenders work from an average of the last two years’ accounts, this can cause a significant reduction in the amount they are prepared to lend, even if you are now back full-time and your income has returned to normal. In situations like this, it is important to use a good mortgage advisor, who can find a lender who can help and is prepared to look at your situation in detail.

Finally, the other thing to consider, will be your ongoing increase in your outgoings. Childcare costs are becoming increasingly expensive and mortgage lenders will treat these the same as a credit commitment in their affordability calculations. So, if you are paying, say, £500 per month in childcare costs, this would be treated the same as if you had a loan with £500 per month repayments. As you can imagine, this can have a large affect on the maximum loan amount a lender is prepared to offer you.

As always, please get in touch with the Barlow Irvin Financial Services award-winning team if you have any questions or concerns around interest rates or the mortgage market as a whole and we will answer them for you.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

About the author 

The Barlow Irvin Team

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