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Does having children ruin your mortgage chances?

Are mortgage lenders penalising families?

Coventry Building Society recently relaxed its mortgage lending criteria to allow families to include child benefit as a form of income. So what does this mean for your mortgage application?

The lender claims the move could boost the maximum amount applicants can borrow, especially those earning between £25,000 and £70,000 a year

But not all lenders can accommodate your familial circumstances, meaning that applying for a mortgage when you have children could impact how much you can borrow.

Find out how lenders calculate mortgage affordability and how to boost your chances of getting a loan when you have a family.

  • For expert advice on the best types of mortgages for families with young children call Which? Mortgage Advisers on 0800 197 8461.


Child benefit as income

The move by Coventry Building Society to include child benefit as income is likely to help parents, especially those with lower incomes, borrow a higher amount.

Child benefit is a payment made by the government if you are responsible for a child who is under the age of 16 (or under 20 and in an approved form of education and training.)

The payments are tax-free if the both you and your partner’s income is less than £50,000 a year.

If you’re eligible for child benefit, you’ll receive £20.70 a week for your eldest, or only child, and £13.70 a week for each additional child.

Child benefit rates 2017-18
Children Child benefit (per week) Child benefit (per year)
1 £20.70 £1,076.40
2 £34.40 £1,788.80
3 £48.10 £2,501.20
4 £61.80 £3,213.60
5 £75.50 £3,926

Yet many lenders don’t take child benefit as ‘income’ when calculating mortgage affordability. This means parents may be assessed for a smaller loan than they may otherwise be.

Does having children affect your mortgage application?

Certain mortgage lenders will take your family circumstances into consideration when calculating whether or not you can afford a loan.

If you have children or are expecting a child, they may take expenses such as child care into account. Factoring in these costs can have a dramatic impact on the amount of money you’ll be allowed to borrow, if any at all.

Some lenders, however, are a lot more lenient with borrowers who have or are expecting children.

These providers usually calculate mortgage affordability using national statistics and are likely to be more generous when calculating the maximum loan amount that you can borrow.

David Blake from Which? Mortgage Advisers, says: ‘NatWest for intermediaries tend to offer bigger mortgages to people who have children, whereas other high street lenders are often more restrictive with lending amounts.

For example, let’s take a family of two adults, earning a combined income of £50,000, with two children, whose childcare costs come to £800 a month.

Applying for a 75% loan to value mortgage over 25 years through NatWest could allow them to borrow £242,500, whereas other selective lenders would lend around £135,000.’

How can families boost their mortgage chances?

If you already have children, there are three main ways of  improving your mortgage chances. 

The first is to speak to a mortgage broker, as they can often advise you which lenders are more flexible than others. This will save you the hassle of potentially having multiple mortgage applications rejected.

Making sure that you claim any benefits that you are entitled to, such as child benefit, could also help boost your mortgage chances.

For certain lenders, this additional money will be counted as income and could help boost the amount that you can borrow.

Finally, extending the term of your mortgage could help increase the amount of money your provider is willing to lend you.

Does concealing childcare costs help?

Some parents have taken to concealing the cost of childcare in a bid to improve their chances of getting a mortgage.

Research by uSwitch revealed that around 68% of families intentionally hid the cost of childcare during their mortgage application process.

The data showed that in a bid to reduce monthly spending, parents used the following tactics:

  • relying on grandparents for free childcare (30%)
  • asking friends to pick children up from nursery or school (27%)
  • reducing their working hours (23%).

Any cuts you can make to your expenses are likely to help your mortgage application. But remember that honesty is the best policy when applying for a loan.

Any changes to your circumstances that could affect your ability to make repayments ought to be disclosed to your lender, or you could end up in trouble further along the line.

David Blake from Which? Mortgage Advisers says: ‘The most important thing is for people to be honest and find a lender who can accommodate their circumstances.

This helps ensure that a mortgage will not only be affordable right now, but also into the future as and when rates rise.’

Getting a mortgage while pregnant

Trying to get a mortgage while pregnant can seem like a daunting task, especially if you’re expecting a reduction in income while on maternity leave.

Here are five top tips to help you when applying for a mortgage:

1) Find the right lender

Some lenders are extremely good at helping customers who are on maternity leave, and mortgage brokers can point you in their direction.

2) Explain your circumstances

Lenders will want you to know about your circumstances and it’s important to be honest and upfront with them. Requirements for a loan will vary across mortgage lenders so it’s important to find the best one for your situation.

3) Assess your own savings

Depending on your working arrangements, your income may take a dip while you’re on maternity leave. Make sure that you have enough savings (or alternative income) so that you can keep up with your mortgage repayments and can prove this to your lender.

4) Think about your return to work

If you’re employed and plan to get back to work after maternity leave, you’ll need yo have a reference from your employer saying you intend to return. You’ll also need to declare any changes to your contract for example, moving from full-time to part-time and any changes to your salary.

5) Factor in childcare costs

It’s important to factor in any childcare costs you might need to cover. Fees for nurseries, childminders, after school groups and nannies can be expensive and it’s important to take them into account when working out the level of mortgage payments you’ll be able to afford.

For personalised advice on how to find the best lender for your circumstances give our experts Which? Mortgage Advisers on 0800 197 8461 or request a free callback using the form below.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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