It’s no secret that having children can be an expensive business. No matter what good intentions you start out with about how they won’t be spoiled or have everything they ask for, your household expenses are bound to increase considerably.
And hand-in-hand with having kids goes the need for a bigger or more suitable house to accommodate you all, which of course is likely to be more expensive as well due to the requirements for more bedrooms, a bigger garden and simply the need for more space.
Surely you just apply for a bigger mortgage to cover it and carry on as normal? Not necessarily – rules brought in earlier this year mean that it may not be that easy and those applying for mortgages should be prepared to have their finances scrutinised and queried closely.
Although banks and building societies have been implementing stricter practices over mortgage lending during the past few years, new rules were introduced by the Financial Conduct Authority (FCA) in April this year, aimed at ensuring borrowers only get a mortgage they can afford to repay.
So, in terms of family planning, it’s as well to be armed with the facts of how changing your mortgage may be affected by a new family member– not that babies always conform to the planning rules, of course.
Under these new mortgage guidelines, any child maintenance or alimony payments will be taken into consideration and will be factored into the calculation for the amount you and/or your partner can borrow.
Previous mortgage rules didn’t factor in these costs against the amount to be borrowed; therefore, you may find that if you need to switch mortgages that you won’t be able to borrow as much now as you could several years ago.
The amount a mortgage lender was prepared to offer you used to be based on a multiple of your salary (single or combined), but now it is based on “affordability” and, thus, your circumstances, income and outgoings will be closely scrutinised prior to a lender making an offer.
As part of this process they will need to know whether your income is likely to be reduced significantly in the future. Having a baby and going on maternity leave may affect the amount you borrow.
For example, your mortgage company will need to know what your expected maternity pay will be and whether your salary will be the same when you plan to return to work or whether this will be part-time. This will then have a bearing on the amount the company is prepared to lend.
The same applies to childcare costs. The company will need to know what the impact of a child (whether this is your first or you already have kids) will be on outgoings, and childcare will also be put into the borrowing equation.
Another factor to consider is the Shared Parental Leave and Statutory Shared Parental Pay rules, which are due to be implemented on April 5, 2015. If this will impact on the father of the baby’s income, it may affect the amount a mortgage lender will offer.
Be prepared to have every element of your outgoings scrutinised. Your bank statements will be looked at in detail and any “extra” costs may lead to a reduction in the amount you can borrow – either as a single person or together with your partner.
It’s possible that if you need to remortgage or are looking for a better rate or different mortgage deal, you may actually be able to borrow less than with your current mortgage, leaving you in a precarious situation.
If you take the potentially reduced earnings and/or increased costs due to childcare into account, it’s possible the impact on a new mortgage will be a negative one and they may not be prepared to lend as much as you had originally borrowed on the same dwelling.
Disclosure: In collaboration with Louise Wood.