Life is full of firsts. For many, buying your first house and having your first child are among these. But when you’re on maternity leave and trying to get into the property market, things can get a bit complicated.
If you’re currently on maternity leave and wondering what impact this could have on securing your dream home, look no further! We’ve done the research for you so that you can learn the ins and outs of applying for a home loan while on maternity leave.
When on maternity leave, you will likely be on minimal (or no) income, which could affect your ability to make repayments. Due to this, many banks and lenders will consider you a high-risk applicant and won’t want to approve your application.
On the other hand, other lenders could be more accommodating. Whilst some might deny your application, others will still let you borrow a ‘standard’ amount – 80% of the home’s value (with a 20% deposit). Or in some cases, you might even be able to borrow more. The trick is to have your papers in order and to find the right lender.
To be approved, you will still need to be a financially sound applicant. They will assess your income, assets and liabilities – just like they would with any other home loan applicant. They will also take into consideration whether your maternity leave is paid or unpaid, as well as the date you plan to return to work. In general, paid is better than unpaid, and most lenders would like to see evidence that you will return to work within 12 months.
Whether or not being on maternity leave will affect your home loan application largely depends on the bank or lender – and the rest comes down to common-sense. It’s simply a matter of being honest with yourself about your situation; if while on maternity leave you have doubts about being able to make your future home loan repayments, it is extremely unlikely that a lender would think any differently.
However, if your financial situation is secure and you can easily demonstrate that despite being on a minimal income you will be able to meet repayments (without mortgage stress), you have a much greater chance of getting your home loan approved.
When applying for a loan whilst on maternity leave, there is some documentation your lender will require to properly assess your application. For example, you will need to provide documentation that details the date you will leave work, as well as your anticipated date of return. You will also need old payslips as well as documents that detail your living expenses (such as utilities, childcare, healthcare, etc). When assessing your home loan application, lenders will also assess the length of your maternity leave – and from a lender’s perspective, they usually look for no more than 12 months.
Since being on maternity leave would affect your income, and the costs associated with a baby would also increase your expenses – not to mention the ongoing costs of caring for a child – your ability to make mortgage repayments would likely be affected.
At the end of the day, if you default on your home loan, you’re going to be the most affected, so it is in your best interest to be honest with your mortgage lender.
Most lenders will require you to provide an estimate of your living expenses. In most cases, they will also calculate your living expenses using the Household Expenditure Method (HEM). This is to determine whether you are below or above the average cost of living. Out of these two methods of estimating your living expenses, it is usually whichever is higher that will go into the calculation of your borrowing power.
While you can remortgage while on maternity leave, it will depend on your personal circumstances as to how successful this is. When on maternity leave, it is likely you are on half pay (or maybe even no pay at all). During the application process, most lenders will consider your income at the time of application, and not your planned return to work income. Depending on your financial situation, this could derail the re-mortgage process.
In some cases, lenders will look more favourably upon your application if you are planning to return to work within three months. In this instance, they will consider your ‘normal’ income, so long as you can provide a signed letter from your employer citing your income as well as your anticipated date of return to work.
The addition of a dependent will also have an impact on your remortgage assessment, as it will increase your living expenses. When planning to refinance while on maternity leave, it is vital that you have your finances in order and have considered all expenses. A good strategy could be to make bigger mortgage repayments before going on leave or to start a savings account. This can help to prove that you can handle the added financial burden. As home loan assessments can vary from lender-to-lender, it is best to ask around before making your decision.
Some banks and lenders have home loan products that allow you to take a ‘holiday’ from your repayments – allowing them to be reduced or put on hold for a period of time. Asking about these mortgage products could be a good option if you don’t think you are going to be able to meet your mortgage repayments while you are on maternity leave.
In some cases, the mortgage lender will also require that your mortgage is still paid off within the original term. If you take a repayment holiday, this means that when you do go back to regular repayments, you will be paying more to make up for the lost time.
When asked about their maternity leave policy for home loans, a Commonwealth Bank spokesperson informed eChoice:
“At Commonwealth Bank, we have a parental leave policy for home loan customers. This is part of our broader extended leave policies which cater for a number of customer circumstances such as maternity, paternity, long service and carers leave.”
“We assess every home loan application on a case-by-case basis to ensure that we meet our customers’ needs and our responsible lending obligations. We lend according to individual risk profiles which take into account several factors including a borrower’s income, assets, liabilities, and their ability to service the loan.”
According to their website, Westpac will recognise paid parental leave – as well as return to work income – when assessing home loan applications. To read more about their policy follow this link: Westpac and parental leave lending
Bankwest have informed eChoice they will “consider an application for a home loan (up to a maximum of 80% LVR) from any existing or new customer who is due to take or is already on a period of extended leave for no longer than 12 months from their PAYG employment (including, for example, parental leave*).”
In order to make the assessment, Bankwest said that they would need information such as the customer’s income, expenditure, assets, and liabilities. They also said customers would need to let Bankwest know details regarding their intended return-to-work date, as well as any arrangements they have in place during their extended period of leave.
*Bankwest’s definition of parental leave is non-gender specific
A Bendigo Bank spokesperson has informed eChoice that “all lending is considered subject to the individual circumstances surrounding each application,” adding that the best thing a customer can do is speak to them so that they can discuss their individual circumstances.
According to Bendigo Bank, when assessing a customer’s application they will have a careful look at the customer’s “current financial position and how that will change upon their return to work”, also saying that they would take into account “whether the prospective borrower is just starting or is toward the end of their maternity or parental leave.” Bendigo Bank also added that intention to return-to-work, as well as the income they are (and will be) on are major considerations.
Lastly, the Bendigo Bank spokesperson told eChoice that “the application will then be assessed on the minimum income they are deriving, but we also factor in the level of savings a person may have and other assets such as shares that could be used to support a temporary decrease in income under these circumstances.”
In other cases, although more broadly the lender might consider child benefit payments as a source of income, it will be dependent on the age of your children as to whether they actually count it towards their calculations. In many cases, if the children are older than eleven they will not count the benefits or payments towards your income.
When applying for a mortgage and citing child support payments as a source of income, you will be required by your lender to submit various forms and details to back this up. For example, you will need to detail whether these payments are court ordered and how they are paid to you. You might also need to submit documents such as bank statements showing the payment being deposited into your account (as well as the deposit history), a letter from your solicitor, a family course law order, etc.
Words by Kathryn Lee
Do you want to know more about maternity leave home loans? eChoice can help you to plan ahead so you know what to expect if you or your partner are taking parental leave. Our brokers have access to hundreds of home loan products, so we’ll help find you a competitive mortgage.