Coventry Building Society recently relaxed its mortgage lending criteria to permit families to include child benefit as a form of income. What exactly does this mean for your mortgage application?
The lender claims the move could boost the maximum amount applicants can borrow, particularly those earning between lb25,000 and lb70,000 a year
But not every lenders can accommodate your familial circumstances, and therefore trying to get a home loan when you have children could impact how much you can borrow.
Find out how lenders calculate mortgage affordability and how to boost your likelihood of obtaining a loan if you have a family.
Child benefit as income
The move by Coventry Building Society to incorporate child benefit as income is prone to help parents, especially those with lower incomes, borrow a greater amount.
Child benefit is a payment made by the federal government if you are accountable for a child who is younger than 16 (or under 20 and in an approved type of education and training.)
The payments are tax-free when the you and your partner’s earnings are under lb50,000 annually.
If you’re eligible for child benefit, you’ll receive lb20.70 a week for the eldest, or only child, and lb13.70 per week for every additional child.
| Child benefit rates 2022-18 | ||||||||
| Children | Child benefit (per week) | Child benefit (per year) | ||||||
| 1 | lb20.70 | lb1,076.40 | ||||||
| 2 | lb34.40 | lb1,788.80 | ||||||
| 3 | lb48.10 | lb2,501.20 | ||||||
| 4 | lb61.80 | lb3,213.60 | ||||||
| 5 | lb75.50 | lb3,926 | ||||||
Yet most financiers don’t take child benefit as ‘income’ when calculating mortgage affordability. What this means is parents may be assessed for any smaller loan compared to what they may otherwise be.
Does having children affect your mortgage application?
Certain mortgage lenders will require your loved ones circumstances into consideration when calculating whether or not you really can afford a loan.
If you have children or expect a young child, they might take expenses such as child care into consideration. Factoring in these costs can have a dramatic impact on how much money you’ll be permitted to borrow, if any whatsoever.
Some lenders, however, are much more lenient with borrowers who have or are expecting children.
These providers usually calculate mortgage affordability using national statistics and therefore are likely to be more generous when calculating the maximum loan amount that you could borrow.
David Blake that? Mortgage Advisers, says: ‘NatWest for intermediaries tend to offer bigger mortgages to individuals who've children, whereas other high-street lenders are often smaller with lending amounts.
For example, let’s take a group of two adults, earning a combined salary of lb50,000, with two children, whose childcare costs come to lb800 a month.
Applying for any 75% ltv mortgage over Twenty five years through NatWest could permit them to borrow lb242,500, whereas other selective lenders would lend around lb135,000.’
How can families grow their mortgage chances?
If you have children, there are three main ways of improving your mortgage chances.
The first is to speak to a mortgage broker, as they possibly can often counsel you which lenders tend to be more flexible than others. This can help you save the hassle of potentially having multiple mortgage applications rejected.
Making sure that you claim any benefits that you're eligible for, such as child benefit, may also help boost your mortgage chances.
For certain lenders, this extra money will be counted as income and could help boost the amount that you can borrow.
Finally, extending the word of the mortgage may help increase the amount of cash your provider is willing to lend you.
Does concealing childcare costs help?
Some parents have taken to concealing the price of childcare in a bid to improve their likelihood of getting a mortgage.
Research by uSwitch says around 68% of households intentionally hid the cost of childcare during their mortgage application process.
The data demonstrated that in a bid to lessen monthly spending, parents used the next tactics:
Any cuts you may make for your expenses will probably help your mortgage application. But don't forget that honesty is the best policy when trying to get a loan.
Any changes to your circumstances that could affect what you can do to make repayments ought to be disclosed to your lender, or you could end up in trouble further along the line.
David Blake from Which? Mortgage Advisers says: ‘The most important thing is perfect for people to be honest and find a lender who are able to accommodate their circumstances.
This ensures that the mortgage won't be affordable right now, but also into the future as and when rates rise.’
Getting a mortgage while pregnant
Trying to obtain a mortgage during pregnancy can seem just like a daunting task, especially if you’re expecting a reduction in income during maternity leave.
Here are five top tips to help you when trying to get a mortgage:
1) Find the right lender
Some lenders are incredibly good at helping customers who are on maternity leave, and lenders can point you in their direction.
2) Explain your circumstances
Lenders will need you to definitely learn about your needs and it’s vital that you be truthful and upfront with them. Requirements for a financial loan will be different across mortgage lenders so it’s important to get the best one for your situation.
3) Assess your personal savings
Depending on your working arrangements, your earnings may take a dip while you’re on maternity leave. Make sure that you have enough savings (or alternative income) to be able to maintain your mortgage repayments and can prove this for your lender.
4) Consider your return to work
If you’re employed and plan to get back to work after maternity leave, you’ll need yo have a reference from your employer saying you intend to return. You’ll should also declare any changes for your contract for example, moving from full-time to part-time and then any changes to your salary.
5) Element in childcare costs
It’s vital that you factor in any childcare costs you might need to cover. Fees for nurseries, childminders, after school groups and nannies can be expensive and it’s important to take them into account when exercising the level of mortgage payments you’ll be able to afford.
