If a new arrival means the need to upsize, there’s one stressful situation which may be out of control; securing a mortgage when on maternity leave.
The unfortunate reality is that if a customer is currently on maternity leave or due to go on it, mortgage lenders may think twice about accepting an application.
Lenders can be understandably concerned because a couple with one parent on extended maternity or paternity leave could either be experiencing a decrease in income, or expecting this decrease in the near future.
Historically, many lenders would also have refused on the grounds that the mother may decide against returning to work at all.
Furthermore, having a child is an expensive undertaking — so this may be a consideration when presenting expenses and living costs to a lender.
Proving combined income
Of course, if the borrowers can reach their affordability target using just one partner’s income, this may not be an issue. However, many clients looking for large loans will need the combined income to reach the amount of borrowing required.
If a return from maternity leave is planned before the first mortgage payment, a lender may consider using regular income.
As long as documents are up to date, borrowers may even be considered simply on ‘temporary leave’. In this case, lenders will generally look at a two-year employment history, which will be used to help qualify for the loan.
If borrowers are looking for a mortgage on maternity leave, an employer confirmation of return to work will be the primary concern.
If a lender is going to consider both partners’ incomes, they will look to receive a letter from the employer, confirming the borrower will be returning to work, what the basic salary will be, and on what basis they will be returning, i.e. part-time or full-time.
Most lenders will now accept this full return to work salary in order to calculate affordability, which is excellent news.
If they work in a profession which pays large bonuses, this can be frustrating, as maternity leave could mean that the bonus history is interrupted.
Unfortunately, most lenders will not be willing to look at the period before maternity leave in order to average the bonuses, so clients should plan for this accordingly.
There are some other options if borrowers are unable to demonstrate they can meet a large monthly payment; they could consider spreading repayments over a longer term to make it more affordable, to then reduce the term once returned to work.
Furthermore, private banks can increase the likelihood of a beneficial result, as these lenders can take a bespoke approach to underwriting applications, considering individual circumstances.
The result borrowers will be able to achieve will be very different depending on salary structure, history with their company, and what stage in the process they are at.
This process can be challenging when busy tending to a new-born and where a good broker can provide an invaluable service.
The full series of Chris Lloyd’s Mortgages for professionals with unusual incomes is available here.