Mortgage based on your normal salary whilst on maternity leave
Contrary to popular belief it is possible to get a mortgage based on your normal salary whilst on maternity leave and I have personally helped numerous customers on this basis. To find out what the mortgage lender’s will expect from you read on.
It goes without saying that borrowing to purchase a large property is common when you have just had a child. Suddenly the dimensions of your existing property seem to shrink overnight and you are desperate for a mortgage even though you are in the mists of your maternity leave – so how do you go about it?
Please can I start by saying that your chances of success are much greater if you are organised and do not tend to throw away important financial documents as the chances are that you will need to evidence a variety of pieces of information about the maternity leave if you are to get a mortgage.
Working Off Of Your Normal Salary
Ordinarily the lenders that are active in this market will apply their mortgage affordability assessment based on your normal basic salary. They are unlikely to take into account additional supplements particularly bonuses, overtime or commission which are reliant on you physically being in the place of work to earn them.
The lender’s will need to understand the tapering down of your actual pay for example: 3 months’ full pay, 3 months’ half pay then statutory maternity pay when assessing the viability to provide a mortgage for you.
If the return period is some way off you will need to demonstrate sufficient personal savings to meet the obligatory mortgage payments until you return to work.
Should you plan to return on a part-time basis the new salary will be the source of the affordability assessment.
A Return Date Must Be Set
Simply saying you plan to return to work is insufficient for mortgage purposes. The lenders will seek confirmation that you have had a ‘return’ meeting with your employer and that ‘terms’ have been agreed and a date set.
A letter from the employer is normally a prerequisite to back this up. If you are employed by a family member it is likely the mortgage lender will turn to the company’s Accountant for a response and professional opinion.
Child Care Provision
The lenders want to understand how you intend on looking after the child.
As you are no doubt aware private child care costs can quickly run in the hundreds and this added monthly commitment will be deducted from your salary before applying the affordability multiple.
Let’s assume the lender’s income multiplier is 4.5, as such the approximate assessment would be:
Basic Salary £30,000
Child care £800 pm (£9,600 pa)
£30,000 – £9,600 x 4.5 = £91,800 maximum mortgage.
If your partner, grand parents etc will be sharing the child care responsibility in full then no deduction will apply.
If you are self employed the lender might question how this extra burden might affect your business capability and seek assurances from your Accountant.
Historical Information Will Be Required
When making a judgement on whether to lender to someone on maternity leave the Mortgage Underwriters apply what I term ‘360 degree’ underwriting. And, it is on this point that many would-be applicants can fall through the net through no fault or their own and where the more organised applicants prosper.
Mortgage Lender’s nearly always ask for payslips and bank statements showing salary credit covering 3 months prior to maternity leave as well as more recent ones. The reason is they want to make sure of the original terms of employment before maternity leave commenced. The bank statement in isolation is insufficient as it will only show a solitary figure and not how it was made up. The Underwriters will be relentless in determining all aspects of pay, for the reasons mentioned above, as the basic salary figure is the prime factor in their calculations.
To conclude your chances of a successful application will often rest with selecting the right lender and help with the positioning of the case in the most favourably way, therefore I would also urge you to use a professional Mortgage Broker, such as Niche Advice.
The nearer you are to finishing the maternity leave the greater the possibility of acceptance. Likewise, a joint application with someone in full time employment will help.
I wish you well, and I’m happy to help if you want to get in contact.
For more information on how we can help you get a mortgage, please contact us on 0207 993 2044 or alternatively complete the simple enquiry form on the top right hand side of this page.
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Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.