I was recently discussing real estate and home loans with a group a friends, including the challenges around buying. During this discussion, a friend mentioned she was recently declined finance because she was considered ‘high risk’ by the banks as she was currently on (paid) maternity leave.

In the group I was the only one that hadn’t yet had children and as the discussion developed, I learned that being on paid maternity leave was a common misfortune of people looking to buy and being declined by banks due to the ‘high risk’ rating. I was shocked and disappointed to hear that a woman’s choice to have a family could impact her family so significantly when trying to obtain approval for a home loan.  Why should a family be denied the opportunity to buy a home when they need it the most?  When a baby is due to arrive or has been born, typically a family will need more room in their home or to move to a better location, closer to schools and services.  The thought that this opportunity is denied simply due to a change in loan servicing, although the income is guaranteed for that period, seems hypocritical of the lenders.

The discussion pushed me to investigate further.  Here are my top learnings to some frequently asked questions:

Can I still get a home loan while pregnant or on parental leave?

Yes, but it might be harder.

Being pregnant or on maternity leave does not restrict a customer from getting a loan, according to the Australian Banking Association. However, the lender might assess you as ‘high risk’.

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 bank or lender will look at your entire position including deposit, loan servicing capacity, employment/maternity leave contracts and also your credit history.

Do I have to tell my mortgage lender I’m pregnant?

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.

If you don’t tell the bank you’re about to go on leave or your income will be reduced, you may not be able to argue the bank assessed your loan application incorrectly if the loan becomes unaffordable. And it could also put your family in financial distress when your baby arrives if you can’t afford to pay the mortgage. Banks and lenders are obligated to comply with the responsible lending conduct code under the National Consumer Credit Protection Act 2009.

Chris Maguire from Loan Market had this to say.

“It is yet another reason to be talking to a broker. Every lender has their own rules and sentiments towards parental leave and your bank lender wouldn’t be in a position to guide you on what may be possible elsewhere.

This has fortunately come a long way, a number of years ago almost no lenders would accept this in any way shape or form. Slowly more and more lenders are becoming more accepting of pregnancy and parental leave. But there is still a long way to go.

Navigating the bureaucracy of lender policies can be confusing enough as it is without having to also accommodate any special concessions for parental leave. Whilst each lender is slightly different in their approach, the below are some of the more common approaches that lenders take;

  1. Some lenders will require you to prove your affordability on both your leave income and your return to work income.This is very restrictive if you were planning on taking extended leave at half-pay or a period as unpaid leave drawing down on savings
  2. Most lenders will require factoring in child care costs when assessing your return to work affordability.
  3. The amount of documents required to prove everything can be quite onerous, particularly if your HR department isn’t flexible as some lenders require very specific wording on letters from employers.
  4. In all cases you will need to know and be able to evidence a definite return to work date and salary
  5. With most lenders, parental leave applications require a senior credit officer to sign off on the application and could require manual review and approval for Lenders Mortgage Insurance.

All of that said, don’t allow the ‘fact of’ to discourage you from reaching out for advice. Every situation is different and you never know what’s possible.”

 

In summary, applying for a loan whilst on maternity leave is possible, however it does often require full disclosure and self-assessment by the applicants to ensure they can meet their financial obligations both now and in the future, post partum.  If you are unsure about your capacity to borrow, you may consider speaking to a broker instead of a direct lender.  The benefit here being that you can discuss a wide range of lenders and their associated policies with one person rather than going to each lender direct.  This saves time but also means you can deal with a professional broker who will do the leg work for you and help find the lender that fits best with your current situation.

 

Useful links:
https://moneysmart.gov.au/having-a-baby
https://www.echoice.com.au/guides/get-home-loan-maternity-parental-leave/

Leave a Reply