With thousands and thousands of babies born each year in the UK, remortgaging whilst on maternity leave is a common concern. Remortgaging during this period can sometimes cause confusion and worry. If you’re having a baby, your life and your financial situation is likely to have changed a lot since your last application.
It doesn’t need to be a headache though. We’ll talk you through how and why being on maternity leave affects a remortgaging application and the best way to approach this to make sure you can successfully remortgage your home.
Why does being on maternity leave affect remortgaging?
How much you can borrow for your mortgage is directly linked to how much money you and your household earn. This is because all lenders have a responsibility to ensure that your total monthly income can cover all of your household’s financial outgoings, including your mortgage repayments.
Let’s say that your income is £40,000 a year. When remortgaging, lenders will make their affordability assessments based on that figure. When on maternity leave however, you’re likely to be on reduced pay for some or all of that period, which puts you in a different financial position. Lenders will need to make assessments based on this reduced income figure and this could make it difficult to meet their affordability criteria.
That being said, there are many lenders that will accept your income prior to going on maternity leave as long as they can obtain a letter from your employer stating when you will be returning to work and what those new terms will be. Remortgaging whilst on maternity leave is possible – you just need to find the right lender for you. To avoid a string of declined applications, enlist the help of a mortgage broker. We have access to the entire market and the know-how to find you the right lender for your situation.
How does being on maternity leave affect remortgaging?
This will depend a lot on a lender’s approach, and each is likely to be different. Some lenders might base their assessment on your maternity pay at the time, which reduces the amount they’ll lend you. Others might take your assurance that you will return to full time employment, at your previous salary, and that you have sufficient savings to tide you over.
A lender is unlikely to directly ask you if you are currently on maternity leave or whether you will be soon. You may be asked on your application if there are any circumstances that may affect your ability to repay a mortgage. Maternity leave certainly falls into this category, so it’s vitally important to be upfront and honest about this at the point of any application.
Keeping things from a lender can be classed as ‘non-disclosure’. Being on maternity leave does not necessarily mean that you will be unsuccessful in remortgaging, but providing false information or failing to provide material information is likely to have consequences.
How can I remortgage on maternity leave?
It’s a good idea to do what you can to show lenders that your decrease in salary is only temporary and you’ll soon be back to full salary. Give a lender confidence by providing past payslips as proof of income, current payslips to show that you are receiving maternity pay, and if possible a letter from your employer that details your return date (if that has been decided yet), and what your salary will be upon your return to work.
This may be enough information and reassurance for many lenders to go ahead with the application using your previous or projected salary. However, if you are going back to work on reduced hours, or into a different role, it’s important to remember that this is likely to affect your pay and therefore could have an impact on your affordability and borrowing capacity.
If your remortgage application is in the joint names of you and your partner, then lenders will make their affordability assessment based on the combined income of both applicants. It may be that the income of the one applicant remaining in full time employment is sufficient on its own to meet the bulk of the lenders affordability criteria, in which case the remortgage should be a fairly straightforward process.
If you are finding it difficult to get accepted with a different lender, then you may find it easier to move to a different deal with your current lender – a ‘product transfer’. You’ll already have an existing relationship and track record with your current lender and they will not need current wage slips.
What about if I’m self-employed?
Remortgaging on maternity leave when self-employed is a slightly different story. In these cases, most lenders will use your year-end accounts or SA302 to assess the level of lending that you will be eligible for.
Depending on your circumstances, the type of business you run and whether you have employees to run the business for you in your absence, you may be able to argue that your business won’t be very affected during your leave and therefore neither will your income. If however, your presence is essential to continue to generate the same level of business income, then remortgaging could be slightly more challenging.
Can I wait until I am back at work before remortgaging?
You don’t have to remortgage as soon as your mortgage term ends, so you could always wait until you’re back in full time employment. Just be aware that during the interim period, you may drop onto your current lender’s standard variable rate (SVR), which might mean you may be paying more than you were previously.
Once you are back at work and have a regular wage coming in you can remortgage to come off this rate and find a more suitable deal. Each lender will have a different approach to maternity leave and each applicant will have a different set of circumstances regarding their employment status and plans for the future.
When remortgaging on maternity leave, using the expert guidance of a mortgage advisor or broker means you can explore the entire market to find a lender and deal that works for your new circumstances. We at Mortgage Light will walk you through this process and do the deal-searching for you, meaning you can focus on the things in your life that matter most right now.
If you’re on maternity leave and confused or concerned about remortgaging, get in touch with us at Mortgage Light today. We’ve helped so many people just like you to get a suitable deal on their remortgage at this time.
Siobhan is the proud Owner and Director of Mortgage Light, having started the company in 2011 with the vision of providing clear and simple advice married with unrivalled customer service to ensure each and every client gets the best possible product with minimal stress and delay.