Property Mortgage planning when you're planning a family

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I love being a parent. It is without doubt the greatest thing in my life and I would spend every minute of the day with my children if I could (and if they were not forever going to parties, sleepovers and play dates and using Dad as a taxi driver). My children are nine and seven and luckily we are still at that age where spending time with Dad is ‘cool’. 

Planning your mortgage finances when thinking about starting a family requires almost the same level of planning as starting the family itself and it’s really important to think ahead. I always encourage clients to try and plan their mortgage finances around when they may want to start a family. Of course, the timing of starting a family can be in the hands of the gods and it’s not possible to be exact but there are a number of things I would consider when thinking about starting a family. 

 

If you are planning a big house move, it’s easier to do so before you have children

A lot of my clients are late twenties to mid-thirties when I first meet them and looking to get onto the property ladder. Typically, they buy a flat in zone 1-4 whilst they are young and still making the most of city life. 

Many of them talk about moving out to the suburbs when they have a family and I try to encourage those clients to make that move before they have children. 

Having children is stressful enough without the added hassle of a house move. I also think it’s really important a client has a period of time in a new home and gets a feeling for the increased costs of an often larger property to allow them to successfully budget. 

It is obviously easier to borrow the amount of money you want with two incomes rather than one and a good broker should be talking to you about the costs of the mortgage and your incomings and outgoings both now and in the future to make sure you are not over extending yourself. As part of my planning for clients I ask them to consider the costs of childcare once the child is born and also how practical it will be for both people to return to work full time once the maternity period is over.

 

You can consider extending the term during this period

Naturally we all want to pay a mortgage back over the shortest time possible but we also need to balance that desire with keeping to an affordable monthly payment. Clients do not always realise that you can increase the term during an expensive period of your life subject to your age.

We obviously need to be careful not to build up problems for later life and it is not my ideal solution for a client but extending a term in a sensible way is a good way to reduce monthly costs. We can always reduce the term once the initial double whammy of extra costs of children and reduced or lost income has passed.

Most high street lenders allow clients to overpay 10% of the mortgage balance so if a client is nervous about committing to the monthly payments over a relatively short period we can work out a voluntary overpayment schedule so the client can take a longer term but overpay on the mortgage like it was a shorter term. The beauty of this approach is if the client has got their figures wrong they can stop a voluntary overpayment whereas you cannot easily stop a committed mortgage payment.  

 

Lost one income – don’t become a ‘mortgage prisoner’

When one person on the mortgage deeds stops working, leaving just one earner, it can leave clients feeling like a mortgage prisoner as a new lender would not lend the amount the clients have borrowed previously based on the new household income.

I have seen clients over the years that believe their only option is to revert to the lenders standard rate which is typically between 4% and 6% but this is not the case. With almost every lender you can go back to the lender who has your property as security and ask for a new deal. As that lender already has the risk they will typically offer a client a new deal without the need to prove income again.

Whilst these rates are not always the market leaders they are a lot better than the standard rate. It’s always worth a chat with a broker if you are in this situation. 

 

High street lenders views on maternity income

All lenders have differing views on maternity income.  Every lender is going to ask about future child costs once the child has arrived and this can reduce what a client can borrow. For example if child care costs are £500 a month, that’s £6,000 per year that the lender will deduct from total income before they apply their income multiplier. This would reduce a client’s capacity to borrow by around £30k in total. 

Below is an overview of what some of the larger lenders ask for before considering lending against income for someone on maternity leave. 

Santander

•    Exact return to work date
•    Confirmation return to work will be on the same terms and salary
•    Last full payslip prior to maternity leave
•    Maternity leave payslip - if available
•    Details of childcare arrangements
•    Proof of savings – if the case completes before the return to work and there is a shortfall in income

Barclays 

•    A return to work letter stating when they are due back, full time or part time and what salary they will be on

Halifax 

•    Last payslip before they went on maternity leave with a letter confirming when they are to go back and on the same terms.

Nationwide

•    Latest payslip showing maternity pay and last payslip before they went on maternity. Or you can provide return to work letter.

 

In summary becoming a parent is an amazing experience. Talking to a mortgage professional about your options in advance of starting a family is a good idea. So feel free to get in contact.


 

David Baker – Latest Blog Posts

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