They may be small, but babies take up a lot of room - so it's no surprise that many people move house to make space for them.
If you're house-hunting while you're pregnant, it's likely you'll want to move before the baby arrives. This can be daunting, particularly if you're worried about getting accepted for a mortgage on a reduced income during maternity leave, paternity leave or shared parental leave.
In this guide, we’ll take you through what to expect when you’re pregnant or on parental leave when applying for a mortgage, and offer tips on how to make the process as smooth as possible.
Maternity leave mortgages: what are the difficulties?
Since you're likely to have a reduced income while you're on leave, especially if you're only receiving statutory maternity pay (SMP), one of the biggest worries can be passing lenders' affordability checks.
If you're planning to return to work, it's important that lenders factor your future income into your application. Sadly, this has been difficult in the past.
A 2015 Observer report found that three major lenders would only take an applicant’s ‘return to work’ income into account if they were going back to their job within the next three months.
The situation looks to be improving, though. We spoke to 15 of the UK's biggest lenders in 2019, including the three who told the Observer about their ‘three-month’ rules, and none of them had a strict three-month cut-off for lending to customers on parental leave anymore.
However, Virgin Money and Metro Bank do require additional evidence of how you will afford to pay your mortgage if you are on a reduced income for more than three months.
Lenders are not allowed to discriminate against customers because they are pregnant, but you may need to produce more evidence that you can afford a mortgage if you are on or about to go on parental leave when you apply.
Pregnant and parental leave policies from major mortgage lenders
All of the lenders we spoke to in February 2019 said they would calculate the repayments you can afford based on what your salary will be when you return to work, though some require evidence of how you will cover the payments while your income is reduced.
Every lender said they’d factor future childcare costs into their calculations, and most required employer confirmation of a return to work date and salary.
The table below shows what each lender requires from a mortgage applicant who is on parental leave or planning to go on parental leave in the near future.
Paying your mortgage on leave
Since your lender most likely will accept your return to work salary as your income, the monthly repayments will be set at a level appropriate to that.
This presents obvious difficulties if you are going to be on a reduced income for a long time.
In January 2019, Which? asked new parents about the financial challenges and unexpected costs they faced when preparing for their newborn babies. Several of them told us that paying the bills was tough when they were on SMP.
As you can see from the table above, some lenders require evidence of savings to help pay your mortgage during this time.
Before you sign a mortgage arrangement, make a detailed budget to check you can definitely afford what you're committing to while on parental leave. Read the Which? Birth Choice guide to how to budget for having a baby for tips on how to do this.
Applying for a mortgage when pregnant: what to do first
Lenders won't ask directly if you're pregnant, but they will ask you if there's anything coming up that could impact your future finances.
Needless to say, children will have an impact and you'll need an accurate idea of what that might be in order to answer mortgage lenders' questions.
Don't see this as a bad thing – lenders aren't asking to catch you out. They just want to make sure you don't take on a bigger debt than you can afford to repay.
Doing the following things before you apply will help ensure you're not hit with any questions you can't answer.
Finalise post-pregnancy plans
If you're employed and you haven't made a decision about how long you'll be on leave or even whether you'll actually return to work, you'll need to make a decision before you apply for a mortgage.
Lenders will want to know what your income will be while you're on leave, but they'll be more concerned about what it will be in the future.
Calculate childcare costs
Every lender we spoke to said they would take future childcare costs into account when assessing how much borrowers can afford to repay.
If you already have children, calculating the cost of your new arrival could be relatively simple. If this will be your first child, you'll need to do some research into childcare costs in your local area.
Make sure you're as accurate as possible. Underestimate and you could struggle to afford your mortgage repayments. Overestimate and you might not be able to borrow a big enough mortgage.
Assess your savings
If you’re likely to struggle to pay your mortgage while on parental leave, you'll need enough savings to cover the shortfall.
Some lenders will want to see proof of this.
Find the right deal
It's important to find a mortgage deal that works for you throughout your pregnancy, parental leave, and beyond.
Whatever your circumstances, talk to an impartial mortgage broker who will be able to advise on the best options for your personal situation.