Mortgages on Maternity or Paternity Leave

Growing your family often makes you think hard about your finances. Having a baby on the way can bring about thoughts regarding your home situation, and leads neatly into the idea of moving up the property ladder - but how does maternity or paternity leave affect your mortgage chances?

At Clifton Private Finance, we have all the expertise you need to navigate this exciting time easily.

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Getting a Mortgage on Maternity Leave

Being on maternity or paternity leave doesn’t prevent you from getting a mortgage - lenders understand that this is a normal part of family life, and your application won’t be prejudiced just because you’re expecting.

However, being able to afford your mortgage is a primary factor in application acceptance. If your plan is to leave work altogether and dedicate your next few years to your little one, then that’s likely to have an impact in any affordability test.

Lenders understand maternity leave, as of course they should, and appreciate that once you return to work, your income will resume as it once was and everything goes on as normal.

This is good news for mortgage applicants, as it means that lenders will usually base their long-term calculations on your normal salary, not your current statutory pay.

How Parental Leave Affects a Mortgage Application

Lenders will want to know a few things:

What Is Your Standard Salary?

A mortgage is a long-term financial commitment, often stretching from your early family days to a time beyond which the children are all grown up and gone.

Lenders know that your temporary maternity pay is not a true representation of your normal income, so they base their calculations on your contracted salary, even if you’re a few months into your maternity leave.

What Are Your Plans?

A little honesty is essential here. Are you returning to work full time after a full 52 weeks of maternity, or are you planning to drop to part-time hours? And when are you going back? An employer confirmation of salary and return-to-work date will be expected as part of the paperwork for your application.

Can You Cover the Temporary Shortfall

While mortgage lenders are flexible regarding maternity leave, they will also expect full mortgage repayments to begin as soon as the mortgage is in place - and they’ll check that you can afford to cover this, potentially for a full year.

Often this means showing that you have savings in place to make up the shortfall, or - in the case of joint mortgages - that your partner’s salary plus your maternity pay can handle the additional load.

Loan Size and Affordability in Detail

Your income affects two main calculations when looking at a mortgage, these are:

• Your loan maximum
• Your repayment affordability

Because the lender takes your post-leave salary into account when making their calculations, your loan maximum, calculated as a multiple of your salary (for example, 4x or 4.5x) is likely unaffected. If you could afford a £300,000 mortgage before your maternity leave, then you can afford a £300,000 mortgage after it.

Mortgage affordability checks and stress tests are done at a higher interest rate than the real mortgage rate. This is to ensure that you can continue to make payments should the base rate change in future years. They are quite strict to protect both the lender and you, ensuring that you don’t fall into difficulties later on.

How your case is presented to the lender makes all the difference - they need to see how you’ll manage repayments during maternity leave.

Similarly, working with an understanding lender who can evaluate your application beyond the basic rules that limit larger banks is essential.

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The following illustrative example explores some of the potential affordability problems with maternity leave:

Maternity Affordability Example - Eve and Mike

Eve and Mike have been saving for a mortgage for years. They have built up £27,000 in savings and were hoping to buy their first home within the year. The exciting news that Eve is pregnant has made them want to move sooner than expected, and they are keen to secure a mortgage. They had been budgeting for a £300,000 home, but have found something they love for £260,000.

Eve’s salary is £30,000 per year, while Mike earns £40,000. They come to Clifton Private Finance for help, just as Eve is due to begin her maternity leave.

CPF’s mortgage team work with several specialist lenders to find a suitable solution. Because Mike’s salary alone, even with a boost from Eve’s statutory maternity pay, would not be enough to pass an affordability test, each option has to be weighed carefully:

• Option 1 - a 90% LTV mortgage, at 4.6% for a 2-year fixed rate term.
• Option 2 - a 95% LTV mortgage, at 4.8% for a 2-year fixed rate term.

If Eve wasn’t on maternity leave, option 1 would be a clear choice. They have the required £26,000 for a deposit and with a combined salary total of £70,000 would meet both the affordability requirements and be within a 4x loan-to-income loan maximum.

Though option 2 is slightly more expensive, it leaves Eve and Mike with £14,000 in savings. This is plenty to cover the first year of mortgage payments if the couple struggle with just Mike’s salary and Eve’s statutory pay. Even though a 95% LTV mortgage is higher risk for the lender, the comfortable safety net provides the confidence needed to go ahead.

Eve and Mike obtain their mortgage and secure their first house together, moving in plenty of time to get the baby’s bedroom ready.

Managing a Mortgage with a New Baby

Your future plans are as important as your current finances.

Evaluating your income and outgoings for the coming years is vital to ensure that you really can cope with the obligation of a monthly mortgage repayment.

Overstretching on a mortgage can create long-term stress for you and your family. At Clifton Private Finance, we take on a duty of care with our clients, making sure that you don’t put yourself in a position that is damaging a few years down the line. Our advisors may discuss your long-term plans with you to make sure your mortgage is a smooth, rather than stressful part of your life.

Considerations should include:

• Potentially dropping to part-time hours - Many new parents change plans once the baby is born, preferring to lower hours to enjoy the early years together.
• The cost of childcare - A serious consideration, for many families, childcare can rival or even exceed the cost of the mortgage.
• Back-up solutions should you want to extend your time away from work - Wider family support and employee flexibility are both worth examining well in advance.
• Additional financial obligations - Car finance or existing debt can put pressure on your monthly cash flow and may be able to be refinanced to soften the pressure.

We’ll help you prepare a clear financial plan that avoids future problems, and we’ll be here to support you with remortgages or other financial needs as your family grows.

Maternity Leave Mid-Mortgage

Maternity leave doesn’t just affect new mortgage applications - more often it happens when you already have a mortgage in place. So, how do you cope if you have a significant monthly mortgage obligation and your pay drops to the low levels of statutory maternity pay?

Managing your mortgage payments when your circumstances is important, and communication is key. If you find yourself struggling, speak to us at Clifton Private Finance; we can help evaluate your options and negotiate with lenders on your behalf to find the best solution. These may include:

• Switching temporarily to interest-only - If your mortgage payments are simply too large to cope with, some lenders will consider a mortgage switch, moving you only to an interest-only mortgage for a year. During this time, you won’t pay back any of the capital of the mortgage, but will only have to cover the interest payments. This can greatly diminish your monthly obligation, often cutting it down by as much as a third. Once you have returned to work, you can switch back and go back to paying off the capital - though the monthly payments will be a little higher to compensate for the missed repayments.
• Extending the mortgage term - Changing the length of your mortgage will lower the monthly costs in exchange for adding time to the end of the mortgage repayment. This can help relieve pressure during maternity leave, though it will result in a longer mortgage and a greater overall amount of interest paid.
• Taking a payment holiday - Though somewhat rare, a repayment holiday may be available, especially if you have previously overpaid on your mortgage. Many lenders offer payment holidays only if you are in significant financial difficulty, which may affect your credit record, but it remains an option that can reduce both financial and mental stress during maternity leave.
• Remortgaging - Though rare, especially if you are already dealing with a lower income, a remortgage may present an opportunity to lower rates for the longer term as well as reducing your monthly repayment.

Maternity Leave Mortgages with Clifton Private Finance

At Clifton Private Finance, we want you to have a wonderful and relaxing pregnancy. Our team are here to provide you with dedicated support, helping you get the mortgage you need so that your family can enjoy a secure home. We will:

• Match you to lenders who are flexible with maternity/paternity leave.
• Present your financial circumstances with clear confidence.
• Advise on your options, including mortgage timing and alternatives.
• Explore short-term options if you are struggling with current mortgage obligations.
• Remain alongside throughout to ensure a smooth and successful process.

We understand the lenders’ criteria and underwriting processes, and can work with you to get the very best deals and lowest rates. Contact Clifton Private Finance today to speak to a specialist mortgage advisor who can answer your questions and help you get the home you want for your growing family.

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