Maternity Leave and Mortgages

by Mark Johnston

Planning ahead for a new baby is a huge task and after the birth of the baby new parents have more than enough to worry about with out having to worry about the mortgage.

What happens however if new parents need to buy a new property?

All lenders differ in their attitudes towards maternity leave, leaving this whole area confusing and murky for all concerned.

It seems that currently then some families are having their dreams of moving house shattered by banks and building societies, as they penalise new mums.

Many mortgage experts stated that there is definitely a lack of clear guidance on how to treat those on maternity leave.

In the past, family and dependants played much less of a role, as the amount that could be borrowed was more heavily based on income multiples. However, since the credit crunch it is now more and more about affordability.

Nowadays, lenders are conscious than ever of the need to lend responsibly, the last thing lenders want to do is to lend too much money, leaving the borrower struggling to pay for other vital costs like childcare. It is easy to underestimate how stretched a new parent will be after the baby is born.

Chris Gardner, director of mortgage broker, stated “as a rule of thumb if someone on maternity leave applies for a new mortgage with in 3 months of their intended ‘return to work’ date and their employer can confirm their return to work salary and date, then most lenders will lend based on their regular income”.

David Hollingworth, of mortgage broker London and Country, adds “different lenders employ very different approaches to the way they view maternity leave and the level of income they are prepared to take in to account when deciding how much to lend”.

Some lenders will simply use the income that can be confirmed at the time the borrower applies for a mortgage, for example the maternity leave pay if they are still receiving that.

Other lenders may not even take maternity pay in to account, even if the woman is the main earner, this is because they fear mothers on maternity leave will not return to work.

The situation has become so bad that trade body, the British Bankers Association (BBA), is to meet with major mortgage banks and the government to discuss allegations of discrimination against pregnant women and those on maternity leave.

The Financial Services Authority (FSA) has also stated it is ‘monitoring the behaviour of banks in this particular situation’.

Although in the Financial services Authority (FSA) recent proposed rules changes, it noted pregnancy and maternity as ‘a potential area for concern’. When questioned on this they added that “firms should not have underwriting processes in place which discriminate against pregnant women and those on maternity leave”.

Many brokers have hit out at lenders treatment of applicants in these cases and they say it is unfair that lenders do not make their policies clear before borrowers apply for a loan.

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