Parents penalised in mortgage applications if they have childcare

Posted by Jasmin Stopford in Mortgages on 26 September 2016 - Jasmin is a Credit Analyst at checkmyfile

Mortgage lenders have been found to make huge deductions on the amount that they will lend if the applicants declare childcare costs.

In 2014, the Financial Conduct Authority set out new rules, which meant that lenders need unquestionable proof that borrowers can afford their monthly payments. With childcare costs rocketing by a third in the last five years, it is estimated that parents can spend up to £11,024 a year if they work full-time. Therefore, lenders are left questioning the borrower’s ability to repay.

Bernard Clarke, of the Council of Mortgage Lenders says, “Under new rules for lenders, a couple with family commitments is not able to borrow as much as a couple who earn the same amount, but who do not have children.”

David Hollingworth, of London & Country continues, “This is to ensure borrowers don’t take on debt they can’t afford, as childcare costs can be sky high.”

Whether the children go to nursery, are looked after by a nanny or have to have their tuition paid for, the parents will still be hit hard either way. For a couple that earn £30,000 combined, and pay £920 a month for two children, will typically be able to borrow £100,000 less than a family with the same income, but with one parent staying at home to look after the children.

Many young families, already struggling to move up or even get on to the property ladder, could see themselves having to rent, change their jobs, go part-time or even wait until their children go to school before they could consider making a mortgage application.

Daniel Bailey, of Middleton Finance concludes, “People don’t think about how having kids might affect the size of the mortgage they could get – why would they? So it’s a huge shock when they realise their bank won’t lend them as much. It’s vital they know how much it can affect their application, so they can get their affairs in order before applying.”

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