How does Having Children Affect Your Mortgage Application?
Families can now benefit from the new mortgage lending criteria which allows them to add child benefit as part of their income in order to increase their chances of borrowing money to buy their dream house.
The move, which was announced by the second-largest mortgage lender in England, Coventry Building Society, is meant to increase the number of applicants who are eligible for a mortgage application – even those who are in a lower earning bracket of £25,000 to £70,000 per year.
But even though Coventry Building Society has relaxed its lending criteria, other lenders may not be willing to accommodate families from lower income brackets, especially when there are kids involved. So how can having a child impact your family’s mortgage application?
Counting Child Benefit as Income
In an effort to make mortgages more accessible to low income families, Coventry Building Society has relaxed its lending criteria by including child benefit as part of the parents’ income. This move allows families to borrow a higher amount against their income to buy a house.
Parents with children under the age of 16 – or the age of 20 in cases where a child is receiving some form of approved education or training – can receive child benefit from the government to help with the additional familial expenses. Only families with combined income of £50,000 a year or less are eligible for these tax-free payments.
Parents who meet the criteria for child benefit receive £20.70 every week for their oldest child and an additional £13.70 for every younger child. Child benefit payments can add up to thousands of pounds a year depending on how many kids you have; yet, lenders don’t consider them a part of the family’s income when determining mortgage affordability. This makes it more difficult for families to get a bigger loan to buy a house.
Your Mortgage Application as Parents
Most mortgage lenders will take all of your family’s expenses into consideration before determining how much loan you afford to pay back. When calculating these expenses, mortgage lenders will also take child care into account if you already have kids or are expecting one.
Child care is often counted as one of the biggest factors that could prevent a family from making timely mortgage payments which is why having kids can affect the amount of money you can borrow for a house, if any at all.
With that said, there are some mortgage providers who have more relaxed borrowing criteria for families with children. These lenders often use national statistics when determining mortgage affordability and are likely to be more lenient when calculating family expenses.
Mortgage adviser David Blake says that certain lenders like NatWest are willing to give better mortgage rates to parents who have children than other high street providers who often have stricter mortgage criteria and only lend small amounts.
Finding the Best Mortgage Providers
Let’s take an example of two working parents whose combined paycheck comes up to £50,000 a year and have two kids with total annual childcare expenses of £8,000. Applying for a mortgage of 75% loan to value, payable in 25 years will allow them to borrow no more than £135,000 through a high street lender. However, by applying for a loan with NatWest, parents can be eligible for a much higher lending amount of £242,500 – enough to buy a spacious house that they can comfortably live in for the rest of their lives.
If you have or are expecting to have children at the time of applying for mortgage, consulting with a mortgage broker can be your best bet for finding a provider who has more flexible lending criteria for families. This can save you a lot of time and money that you would otherwise spend on filing multiple mortgage applications and getting rejected.
Before you apply for a loan, make sure that you have claimed all government benefits that you are eligible for, including child benefit. Some lender will be willing to count these benefits as additional income which may help increase the amount of money they are willing to lend. Extending you mortgage term could also be an option for low-income families to get a bigger loan for buying a house.
Do you think applying for mortgage after having children is a smart decision?
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