“We can afford £150,000 less than we could two years ago because of the rates going up and because of having a child,” says Michelle Coupar, 36.
Coupar works full time as an account manager and currently rents a one-bedroom flat in Tooting with her partner and one-year-old son. Their rent is £1,700 a month; her monthly childcare costs are more at £1,750. She’s struggling to buy and get a mortgage, despite saving up a healthy £90,000 deposit.
According to Joeli Brearley, chief executive and founder of Pregnant Then Screwed, Coupar is far from alone in this predicament. “For many parents, the cost of childcare is the same or more than their housing, and so inevitably this means that securing a mortgage or remortgaging your house can be extraordinarily challenging as your expenses are skewed for a few short years,” says Brearley.
Interestingly, lenders don’t use a blanket rule when it comes to calculating how childcare affects affordability. “Most lenders are flexible and will look at the bigger picture of your family’s plans and finances. If you are moving closer to family members this can work in your favour as they can obviously help with childcare and underwriters will look at this logically and factor it in,” says Carly-Marie Cheeseman, of Clifton Private Finance.
For many, the cost of childcare is the same or more than their housing. This means securing a mortgage can be challenging
The age of your children at the time of applying for a mortgage is a crucial factor. Lenders look favourably on your situation if your child is approaching primary school age as it is assumed that your childcare outgoings will significantly reduce. “This can make a big difference,” says Adrian Anderson, of Anderson Harris. “If the childcare financial commitment is going to stop within circa six months from the date of the application, there is a chance a bank may disregard these.”
Flexible hours, rigid rules
But having children in school throws up its own set of challenges. Many parents often take on part-time or lower paid, insecure jobs in order to juggle school hours and holidays. This inevitably makes getting a mortgage more difficult.
Single mother Julie Hawkins, 46, had to leave an employed position as she was refused flexible working hours and couldn’t pick her daughter up from school. “I went into low-skilled, low-paid, part-time work and for the first time in my life needed benefits. I have a law degree but I couldn’t work for a solicitor because of the childcare costs and barriers.” She now runs her own business and works as a self-employed bookkeeper four days a week, which allows her the flexibility to be around in the school holidays.
I feel like saying: ‘Look what I am paying in rent.’ That could be for a mortgage. The entire calculation of mortgages is outdated
The downside of this arrangement is that Hawkins is trapped as a tenant, despite previously owning a home, and doesn’t earn enough to get a mortgage — even though she pays her landlord £1,250 a month. “I feel like saying: ‘Look what I am paying in rent.’ That could be for a mortgage. The entire calculation of mortgages is outdated.”
Despite mortgage terms being on average 25 years, lenders use borrowers’ current position at the time of their application and, even if they plan to increase their working hours down the line, this isn’t taken into account. “The lender will usually assess the scenario and financial position based on ‘now’ and will not usually assume that the parent will work more hours in the future,” says Anderson.
The impact of maternity leave
But it’s not just childcare fees and part-time working that are making it difficult for parents to secure mortgages, many parents struggle before their children are even born, as Kirstie Kissell, 41, found when she moved to Clapham. “I knew it would be trickier to get a mortgage because I was self-employed. They asked for two years of tax returns and because my youngest was one, one of those years it was down [due to maternity leave].”
The lender agreed to take into account the pro rata amount as Kissell, who owns a soft furnishings business, had worked for four months of the year. “We had done the survey on the house and then, out of the blue, I got an email from the mortgage company saying that they were reviewing the offer and could only offer us £50,000 less than what had previously been agreed due to reduced earnings. It was a Friday afternoon, and I took the call in the playground so there was nothing we could do before the weekend.”
The couple managed to fight the mortgage company to reinstate their previous offer, but it involved Kissell sending them every invoice and bank statement from the past 18 months.
For those in employed positions, taking maternity leave doesn’t have a major impact on a mortgage application, although the bank may enquire into what your future childcare costs will be. “Lenders will ask what your income will be when you return to work. Some will ask for a letter from you confirming this in a statement, along with the last payslip you had before going on maternity leave,” says Cheeseman.
But, when you’re self-employed, like Kissell, things can get tricky. “If you’ve earned less in a previous tax year it can affect your averaged income over two years as a self-employed applicant.” For this reason, Cheeseman notes, many self-employed mothers take minimal time off and work through much of their maternity leave.
Can IVF affect your mortgage chances?
Couples undergoing expensive IVF treatment may also find themselves struggling to get a mortgage. While lenders aren’t allowed to penalise or treat them differently, the cost of IVF in itself can be problematic — something 36-year-old Hannah Wilson (not her real name) found.
She works in PR and had six rounds of IVF before having a baby boy 18 months ago. Wilson lives with her husband and son in a two-bedroom flat in Tooting and had looked at moving two years ago before she became pregnant. “The first time we went through this process, we didn’t have any nursery costs and interest rates were lower. Plus, we had our savings.” They spent £30,000 on IVF and now pay out £1,500 a month on nursery fees.
We are living in a Zone 3 flat with a toddler when otherwise we could have been in a three or four-bed house but no baby
“The flat is on the market now and people are offering way under the asking price. We don’t have a buffer for this because we spent the money on IVF. The sacrifice we’ve made is that we are living in a Zone 3 flat with a toddler when otherwise we could have been in a three or four-bed house but no baby.” Wilson has no regrets over the choice she made but admitted: “I worry about what will happen to those people who are in the middle of IVF when their fixed-rate mortgage comes to an end.”
In many ways, Wilson was fortunate in that she had savings to fund her IVF. Michelle Niziol, director and owner of IMS Property, says she’s had “some clients who have had IVF and taken out loans and credit cards to do this. Sadly, this then does affect affordability as it’s taken into account as a credit commitment.”
And this isn’t an uncommon situation. “Most people are putting the expenses of fertility-related treatment and childcare expenses on credit cards, as a result of a survey that we conducted with our membership,” says Charlotte Gentry, Founder of the IVF Network. “Mortgage applications rely on reducing your monthly overheads and keeping your salary incomings as high as possible to enable a successful mortgage application, and when you have a child or indeed are undergoing any extensive medical treatment such as fertility, the costs are high and the effects of this make applying for any kind of loan, challenging.”
While parents and would-be parents might feel like they are penalised and treated unfairly, Niziol flags that mortgage lenders are just trying to protect themselves and borrowers from potential problems further down the line: “Lenders cannot discriminate, however they have a duty of care to ensure that the mortgage borrowing is affordable.”
Rising bills
- The average annual nursery bill for a family with a child under two was £4,992 in 2010. In 2021, it had risen to £7,212 — an increase of 44 per cent.
- The monthly cost of a new mortgage rose by 61 per cent in the year to December 2022 for the average semi-detached house in the UK.
- The average mortgage rate offered by lenders for a five-year fixed-rate loan at a 75 per cent loan-to-value ratio was 5.05 per cent in December 2022. The average equivalent mortgage rate on offer was 1.59 per cent in December 2021.
- Based on a 75 per cent loan-to-value rate on a five-year fixed mortgage over 25 years, an average terraced property in London would have cost £2,616 per month, an increase of £930 on the equivalent figures from December 2021.
- Mortgage repayments on an average semi-detached house increased by £1,132 between December 2021 and December 2022.
How to get a mortgage with children
- Be honest about your affordability and future childcare plans. If you’re not, you’ll waste time with an application only for something to crop up further down the line.
- If you’re taking out a five-year fixed rate deal, think about whether you’re planning more children in this time as it could affect things when you come to remortgage.
- If you can afford it, put aside some savings to cover childcare costs. Some lenders will take this into consideration and allow you to borrow more.
- If there’s going to be a significant drop in your childcare costs, e.g. your child is approaching school age, this should be communicated on your mortgage application.
- Engage a broker. They will manage your expectations, communicate with lenders, assist with your application and secure broker-only deals.
