Can I Get a Mortgage on Maternity Leave?
Life is full of important decisions and having a child can be the most fulfilling and enjoyable experience, but it can also cause a lot of stress around your finances. Having a child is expensive on a basic level, and it can be problematic finding a mortgage product if you are on maternity leave.
The great news is many lenders will offer mortgages when you are on maternity leave. There will be additional requirements for a mortgage or remortgage on maternity leave and this guide breaks everything down for you.
Let’s explore mortgage solutions on maternity leave further.
Mortgages and Maternity Leave
When you are on maternity leave you will likely be on a reduced rate of pay compared to your normal salary. If you are fortunate enough to work for a company that pays your full salary on maternity leave you will find that getting a mortgage is straightforward.
If your income has been reduced, which is the case in many maternity leave applications, you will need to show the lender your mortgage is still affordable. Lenders will typically request your current payslip on maternity leave and your last payslip before going on maternity leave.
Most companies pay statutory maternity leave pay. For the first six weeks of your maternity leave you will receive 90% of your weekly salary (before tax/gross). Thereafter the rate of pay drops once more. It will either be 90% of your average weekly income (applicable for those on lower incomes) or £156.66. The amount you are paid is the lowest of these two values which is why the 90% rule is only applicable to low-income situations.
Some companies have top-ups for maternity after week six, but once again this is the exception to the rule and most companies will only meet statutory requirements. This is because they will not benefit from you whilst you are on maternity leave.
Will All Lenders Allow Me to Borrow on Maternity Leave?
Unfortunately, there are a group of lenders who will not consider a mortgage application if you are on maternity leave. However, the majority of lenders, especially those on the high street, will allow a mortgage on maternity leave. You should use a mortgage broker to find a suitable lender.
How Much Can I Borrow?
When applying for a mortgage on maternity leave a lender will want to know the following:
- How much income you have on maternity leave
- How long you expect to be on maternity leave
- Whether you will return to full time employment after your maternity leave
The key mortgage issue that women face on maternity leave is the drop in income and passing affordability requirements. Most lenders are generous and allow you to borrow on your normal salary. These lenders may ask for additional evidence from you that you aim to return to full time employment as soon as you can.
Some lenders who accept mortgage applications for women on maternity leave will reduce the affordability calculation in line with either your statutory maternity leave entitlement or a reduced income calculation.
Affordability Calculations and Maternity Leave
By using a mortgage broker to source your mortgage you will be able to look specifically at the lenders who allow you to use your full salary for affordability calculations. This is crucial if you are looking to maximise the amount you can borrow or obtain a remortgage on your existing property.
For example, if you have income of £40,000 ordinarily, a lender offering 4.5 times your annual salary will allow you to borrow up to £180,000. A lender who takes your statutory maternity leave entitlement will only allow you to borrow up to £39,478 – which equates to 4.5 times your maternity pay entitlement. This is a vast difference and can significantly hamper your ability to borrow your desired mortgage amount.
You will also need to pass the lender’s credit score requirements.
Returning to Work
A lender will require a declaration from you in most cases to confirm you intend to return to work. This may include additional information such as returning on a full-time basis rather than a part time basis. Lenders typically ask for a projected return date as well.
For a lender, the longer you are on maternity leave the greater the risk that the mortgage poses. This is because your income is reduced and the longer you stay on maternity leave the higher the chance that you will not be able to afford the mortgage payments.
Remember, there are lenders who will calculate your affordability on your full salary. If you are on maternity leave for an extended period, the chance that you will not be able to afford your monthly mortgage payments increases.
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What Deposit do I Need for a Maternity Leave Mortgage?
Applying for a mortgage on maternity leave is much the same as applying for a mortgage when you are working full time in terms of the products lenders offer. This means you will have access to the same mortgages as a traditional borrower providing you pass a lender’s criteria.
The deposit requirements will be the same in this respect as a borrower who is working full time. A typical deposit for residential mortgages is 10%. There are lenders who accept lower deposit amounts, but you will need to check with your mortgage broker if these lenders also accept those on maternity leave and allow you to borrow the amount you require. A good rule of thumb is to budget for at least a 10% deposit when applying for a mortgage on maternity leave.
Remortgaging On Maternity Leave
The affordability calculation becomes even more important when remortgaging. Especially if you are early in a mortgage term. For example, if you initially borrowed based on your full salary as a first-time buyer two years ago and want to remortgage onto a new deal, you will find affordability extremely tight if a lender reduces your income for maternity leave.
If a lender only accepts statutory maternity pay in this scenario, you may find yourself unable to switch products with that lender. In that scenario, you should speak with a mortgage broker to discuss remortgage options.
What Our Clients Have To Say
Speak to a Specialist Mortgage Adviser
The most important step you can take if you are looking for a mortgage on maternity leave is to approach a reputable mortgage broker like Boon Brokers. We will be able to source a mortgage that maximises your affordability calculation and advise you on the documentation and evidence you will need to apply for your mortgage. Plus we won’t charge you a single penny! Contact us today either by calling tel:01508483983 or completing our contact form.