Nell Matzen - 1 Oct, 2021
Usually, in life our big moments come one at a time – a house, pets, marriage, maybe some kids? But sometimes, no matter how well laid our plans are, we don’t get to tick life’s boxes in the order we intended.
If you’ve found yourself on maternity leave, parental leave or pregnant, and trying to get into the property market; you may find that securing finances is a little more complicated than it usually would be.
For many banks, the short answer is no due to the fact that you will have reduced income during this time, which will put you in the high-risk category. However, other lenders may be more flexible, allowing you to 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.
Borrowing with a partner could increase your chances of approval, as they will look at your combined incomes. Similarly, your chances of approval might be bettered if you have a continued source of income whilst on leave. Some banks will even take government payments, like paid parental leave, into consideration.
Ultimately, the result is lender and applicant dependent.
Legally, being pregnant alone should not affect your mortgage application, but whether or not your pregnancy will affect your ability to service the loan will. If you aren’t sure if you will be able to make your repayments comfortably, the banks will likely agree.
Lenders cannot legally ask a person about their pregnancy or maternity or parental leave during the loan application process, as this could be considered discriminatory under the Equality Act.
However, they are also legally obliged to ensure you can service the loan under the National Consumer Credit Protection Act and will ask if there are any anticipated changes to your circumstances in the future.
It is in your best interest to calculate how your expenses will change during maternity or parental leave and factor this into your ability to make mortgage repayments.
The number of dependents you have will affect your borrowing power. To determine your cost of living, most lenders will use the House Expenditure Method to calculate an applicant’s living expenses. Ultimately, having dependents means higher living expenses and lower disposable income to make repayments.
Re-mortgaging on maternity is similar to applying for a new mortgage – dependent on the lender and the applicant’s financial circumstances. Most lenders will consider your income at the time, not your return-to-work income – which could lead to your application being rejected.
On the other hand, some lenders will be more open to your application if your return-to-work date is within three months. In this case, your application will be based on your full income, which will need to be proven by a written letter from your employee, which will include your intended return date.
You may need a few additional documents than usual when applying for a mortgage on maternity or parental leave.
You will need documents which prove your:
Additionally, your bank may ask you to provide:
In the past, banks were quite rigid with maternity leave mortgage applications and wouldn’t take your return-to-work income into account, no matter how high it was. Fortunately, lenders are becoming more flexible with these types of loans.
In addition to your return-to-work income banks also take into account:
Like any other mortgage application, loan features should be chosen depending on your financial situation and goals.
When applying for a mortgage on parental or maternity leave, a loan that allows repayment holidays may be beneficial, especially if you decide to extend your leave. However, a repayment holiday could lengthen the life of your loan or increase payments for a period of time.
If applying for a mortgage when pregnant, choosing a loan where you can make extra repayments could help you get ahead before the baby arrives.
As mentioned above, not all lenders and loans allow repayment holidays. To assess if you are eligible, the bank will look at how long you’ve had the loan, if you’ve missed any repayments and your loan to value ratio. If approved, your repayments could be paused for up to 12 months – but lenders usually start at three months and reassess.
You may also be eligible for reduced repayments for a period of time, which will make the catch-up period more manageable.
This information is a guide only and is an estimate only based on the past 12 months of aggregated online mortgage enquiries from eChoice and partner programs.
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The best way to improve your chances of having a loan approved whilst on maternity or parental leave is to have a healthy savings account. This way, you can prove to your lender that you will still be able to make repayments even with a reduced income.
It’s also a good idea to consult with a mortgage broker as not all lenders will be open to this kind of loan, so you’d benefit from someone helping you find the right institution. A mortgage broker will also help you navigate the complicated process.
Other tips which could improve your chances:
ANZ doesn’t have a specific policy regarding applying for loans whilst on maternity leave. However, a spokesperson for ANZ told Choice.com.au that being approved for an ANZ home loan on maternity or parental leave is dependent on individual financial circumstances.
“Lending policies are based on the customers’ known or expected circumstances at the time the loan is taken out,” they said.
Applying for a Commonwealth Bank home loan on maternity leave has specific requirements. They will assess an applicant’s income, expenses, assets, and liabilities to see if you can service the loan. It may be more challenging to get a Commonwealth Bank home loan, but not impossible if the applicant meets the lender’s criteria with supplementary income, spousal support or sufficient savings. Just like any other applicant, the bank will ensure they are meeting their responsible lending obligations.
According to their website, Westpac has three specific policies regarding home loans and paid parental leave: mortgage payment reduction, mortgage repayment pause and parental leave lending – where they will recognise paid parental leave, as well as return to work income.
For eligibility and conditions for each of these options, please follow this link: www.westpac.com.au
Bankwest has 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*).”
To assess eligibility, Bankwest will need to know the customer’s income, expenditure, assets, and liabilities. The applicant will also need to outline their intended return-to-work date and any arrangements they have in place during their extended period of leave.
Bendigo Banks’ policy surrounding home loan applicants on maternity or parental leave is subject to the financial circumstances of each applicant. If considering a Bendigo Bank home loan, it is advised to contact them directly to discuss your situation.
Bendigo Bank will assess the customer’s current financial position, their return-to-work income and the time remaining on their leave. A spokesperson from Bendigo Bank informed 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.”
Words by Nell Matzen
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.