So, you’re having a baby? … Better call the mortgage advisor!!

Posted by & filed under Finance, Lifestyle, Mortgage.

During a recent appointment, not for the first time, I enjoyed spending time with a young couple who are looking forward to the birth of their first child. Below you’ll find some parts of our conversation, that I’m going to share for other expectant parents.

Easily the best part of being a Mortgage Advisor, is that clients will often call when they’re thinking about, and preparing for, exciting life events. Think about it and you realise there are many events that can impact upon their housing and financial choices …. Couples moving in together, planning for marriage, a receipt of an inheritance, and of course (the subject of this blog) new arrivals. Some people want to review, and some need to create or buy a larger home to meet their needs. I’m very much a ‘people person’, so I’m enormously grateful to be able to share in key points in my clients’ lives.

Is it better to get a mortgage before we start a family? How will having children impact on mortgage options? Can I still get a mortgage if I’m on maternity leave? .. All of these are questions that I’ve been asked many times over my years as a Mortgage Consultant. I’ll try to give some insight for you here:

Is it better to get a mortgage before we start a family? .. Some people might believe that this is the best approach, because if you’re a couple who are both working at the time of application you could demonstrate two incomes. It’s true that the higher the income that you are able to demonstrate, the more you’re likely to be offered as a maximum possible loan by a lender, but the questions is … just because you can borrow more, do you think you should? If you are expecting to have children in the future, which may mean reduced income and increased expenditure, is it a sensible choice to borrow as much as you can now, or might you be creating a future financial pressure? An alternative might be to consider the budget that the ‘future you’ will have available to spend on mortgage payments, and to borrow accordingly. By doing so, perhaps you can assist your ‘preparation savings’, as well as making sure that you have a manageable plan for ‘future you’.

How will having children impact upon mortgage options? .. Each lender uses its own criteria to assess an application, but the aim is always the same; to assess the ability of the applicant to be able to support payments and repay the mortgage debt. To do this the lender needs to consider the household income and expenditure. When we talk about household expenses, people tend to think of gas / electric / council tax / loan and credit card payments, but a responsible lender is always expected to think about other things like feeding / clothing / caring for children. If both parents are working, will the younger member(s) of the family need some kind childcare to enable the parents to work and earn? The likelihood is yes, so the lender must then factor the childcare if it is to use the income.

Can I still get a mortgage if I’m on maternity leave? .. If you can demonstrate that you’ll be able to support mortgage payments, and meet lender criteria, then yes of course. A lender is concerned about whether someone can support payments during the full life of the mortgage, not just for the next few months. It’s likely that some additional questions could be asked, such as when you expect to return to work, whether your hours will change, and what childcare costs will need to be paid for the time you’re at work. Some lenders may also ask if you have set aside funds during your maternity time to assist during this time of (usually) reduced income.

Besides the mortgage, what other financial planning should / could you be doing before being becoming parent?

Hope for the best, but plan for the worst .. Until now you have just had yourselves to look after, but very soon that will change. Do you need to write a Will, that includes instructions about who should care for your little person if you’re not around? Do you want some advice about ‘Family Income Benefit’ that would provide an income for the household in the event of a death, or income replacement cover to help pay the bills if you’re unable to work due to accident or illness. If you want advice on creating the right protection for you family, feel free to get in touch.

Discover the other support is available that you can take advantage of?The following list isn’t exhaustive, but it’s a start:

Maternity Pay – It’s seems a very small thing, but could make a big impact .. Some basic maths might be the difference between taking the time off you want, and returning to work earlier than intended because of cash flow.

If you are earning the average full time wage for a UK female of £25,336 and only receive statutory maternity pay and no other employer benefits:

  • 90% of average weekly earnings (before tax) for first 6 weeks .. around £366.21 after tax and NI
  • £148.68 or 90% of your average weekly earnings (whichever is lower) for the next 33 weeks

During the 39 weeks you will receive a total of approx. £7,000. This means that for 39 weeks you should aim to spend no more than £179.49 per week and over 52 weeks £134.62.

https://www.gov.uk/maternity-pay-leave/pay

Free prescription and dental – One way to be able to stretch the maternity pay is to work out what you don’t need to pay for. When you’re pregnant, and for 12 months after the birth, you will be entitled to free prescriptions and dental care.

https://www.nhs.uk/conditions/pregnancy-and-baby/maternity-paternity-leave-benefits/

Child Benefit – You may be entitled to child benefit payments, once the baby has arrived. If both you and your partner earn (individually) less than £50,000 you can claim full rate, but if one of you earns between £50-60,000 then a proportion of child benefit will need to be reclaimed through tax.

https://www.gov.uk/child-benefit

Paternity & Parental Leave – If both parents want to spend some time at home with your new addition to the family, then perhaps you will be able to claim £148.68 per week for 2 weeks paternity leave. Maybe you would prefer to share parental leave, & split the allowance between you.

https://www.gov.uk/paternity-pay-leave

Support when it’s time to return to work – The government ‘Tax Free Childcare’ was set up to replace the old voucher system, that was closed to new entrants from 4th October 2018. When you are within 31 days of returning to work, if you meet eligibility criteria, you can sign up for a childcare account. Once active, for every £8 that you add to the account the government will pay up to £2, up to a maximum of £500 per quarter and £2,000 per year. You can then use the money in the account to pay for childcare costs, that might be nursery fees or a childminder initially, then a few years further on might be used for after school and / or holiday clubs!

https://www.gov.uk/tax-free-childcare?step-by-step-nav=d78aeaf6-1747-4d72-9619-f16efb4dd89d

At the time of writing, I have been a father for a little over 6 years and 5 months. I have worked in Financial Services for over 20 years and been talking to clients (face to face) about their house purchases, mortgage arrangements, and other future plans since September 2002. From personal and professional experience, I know that just having, and acting on, some basic information can make life easier. I hope that the above article is helpful, and if you’d appreciate a cup of tea and a chat about your needs, feel free to call my office on 0117 204 7440.

Congratulations, and best wishes

Matt Colley

04/02/2020

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