With a baby on the way (or already here), you really don’t need any extra worries or stress. So it can be frustrating that getting a mortgage on maternity leave isn’t always straightforward.
Fortunately, there are things you can do to make the process smoother, and improve your chances of getting a mortgage.
How does maternity leave impact your chances of getting a mortgage?
First, it’s important to note that you can get a mortgage when you’re on maternity leave or paternity leave. You just have a few extra hoops to jump through.
The main complication is that your income is temporarily lower while you’re away on parental leave. Let’s say when you work full time you earn £35,000 a year, but during your maternity leave, you earn £25,000 a year. Some mortgage lenders may use the lower figure to decide your “affordability” (how much you can afford to borrow on a mortgage).
The result is that they’re not willing to lend you as much as they would if you were still working full time. And so you might be declined for a mortgage on a property you could otherwise have afforded.
The good news is, other mortgage lenders are happy to base your affordability on your regular salary rather than your maternity pay. They might just ask you to provide a letter from your employer confirming your salary and when you’ll be returning to work.
How much can you borrow for a mortgage on maternity leave?
Every lender is different. First, you’ll need to find a lender who’s willing to let you borrow based on your full time salary rather than your maternity pay.
Some lenders will loan you up to three times your income for a mortgage, others might extend that to five times your income.
How much deposit do you need for a mortgage on maternity leave?
This depends on your individual situation. Typically, you’ll need a deposit that’s a minimum of 10% of the property’s value, but a larger deposit will open up more mortgage deals for you.
Should you tell your lender if you’re pregnant or going on maternity leave?
The simple answer is: Yes. That’s because it will have a significant impact on your finances, which your lender will need to know about.
Telling your lender about a pregnancy
Let’s take pregnancy first. When you apply for a mortgage, your lender will ask you if you’re expecting any “material changes” to your financial circumstances. Essentially, that’s anything that could affect your ability to keep up with your mortgage repayments.
Expecting a baby definitely counts as a change to your situation, and you need to be honest about it. That’s going to be a whole extra mouth to feed, clothe, entertain… and this will affect your lender’s assessment of your finances.
If they decide they can’t lend to you after all, you’ll want to know about it sooner rather than later so you can line up a new mortgage deal.
Telling your lender about maternity leave
If you’ve not started maternity leave yet, it won’t be clear from the recent payslips you give the lender that your income is about to be reduced.
You still need to explain to your lender what’s about to happen so that they can make an informed decision about your application. Otherwise, you run the risk of being accused of mortgage fraud, even if you didn’t intend to break the rules.
Overall, giving your lender all the information you can about your financial situation will help them calculate a mortgage deal that works for you. And, more importantly, one you can comfortably afford once the baby has arrived.
How to get a mortgage when you’re on maternity leave
Here are three essential tips to follow when you’re applying for a mortgage during maternity leave:
1. Work out your budget
When you’re still looking for a property to buy, think about how having a child and going on maternity leave will affect your finances. This will help you decide whether you’ll be able to afford the mortgage repayments on a particular property, given your growing family.
If you want to get a mortgage that’s based on your usual full time salary, you’ll need to make sure you can still cover the monthly repayments while you’re on your lower maternity pay. Lenders may want to see evidence of whatevidence what extra income you’ll use to afford this. For example, money in a savings account, your partner’s salary, or a gift from a family member.
At the same time, think longer term, too. Work out how much you’ll need to spend on childcare once you return to work. Your lender will want to see that you’ve factored this in. So, if a family member will be taking care of your child for free, you might need to explain that to your lender.
2. Use a mortgage broker
A mortgage broker, like Habito, can help you find a lender who’s used to working with people on parental leave and who’ll be willing to lend to you based on your full-time salary.
This will save you time trawling through deals from unsuitable lenders. And it will help prevent your application from being declined, which could damage your credit score.
3. Get a reference from your employer
To support your mortgage application, ask your employer to write a letter confirming:
- That you’ll be returning to work
- Your return date
- The hours you’ll be working
- Your salary
If you plan to go back to work part time, your lender will decide how much they’re willing to lend you based on your new salary.
Getting a mortgage on maternity leave: FAQs
Got more questions about applying for a mortgage on maternity leave? Take a look at our FAQs:
How does maternity leave affect a joint mortgage application?
With a joint mortgage application, the lender might use the combined income of both applicants to decide how much they’re willing to lend you. If one of you is on parental leave when you apply, you’ll need to convince the lender to use that person’s full time salary (not their maternity or paternity pay) in their calculations.
Does it make a difference whether it’s maternity or paternity leave?
Not really. The lender is looking at the effect of your leave on your income – it doesn’t matter whether it’s maternity or paternity.
Can you remortgage while on maternity leave?
Yep, you can remortgage your home with a new mortgage provider while you’re on maternity leave. Just as with a new mortgage application, you’ll need to find a lender who will base the amount they’re willing to lend you on your regular full time salary, not your reduced maternity pay.
Can you get a bad credit mortgage if you’re on maternity leave?
This can be tricky, but it’s not impossible. The thing is that many of the lenders who’ll grant you a mortgage based on your normal salary (not your maternity pay) don’t offer bad credit mortgages.
But don’t give up just yet! A mortgage broker can still help you find a mortgage deal to suit your needs.
Can you get a mortgage when you’re on maternity leave and self-employed?
Yes, you can. This might be more or less challenging, depending on your situation. With self-employed mortgages, lenders usually base the amount they’re willing to loan you on your year-end accounts or SA302s. But when you go on maternity leave, they’ll want to know how your time away from your business will affect your income.
Getting a mortgage is likely to be simpler if you can show you have employees to take care of the business while you’re away. If you’re a sole trader or the business can’t carry on without you, that will have a big impact on your income. So lenders might be less willing to grant you a mortgage.
Planning to get a mortgage on maternity leave?
If you’re on parental leave and looking to get a mortgage, Habito can help. We’ll scour 20,000 mortgage deals from over 90 lenders to find you the right mortgage for your situation.
We’ll help you out with the application, too, so you and your growing family can get on with enjoying your new home together. Get started here.