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Families' home-buying dreams shattered as banks get tough with new parents

Published 21st Mar 2012

Families are having their dreams of moving home shattered by banks who are penalising new mums.

Money Mail can reveal how banks and building societies are imposing tough rules that limit how much families with recently born children can borrow.

Banks fear mothers on maternity leave won’t return to work and so are refusing to take into account their income — even if the woman is the main earner.

With banks asking for bigger deposits for the best deals this is scuppering the chances of many families of moving home or even to move to a cheaper rate.

The situation has become so bad that trade body the British Bankers’ Association (BBA) is meeting major mortgage banks and Government officials to discuss allegations of discrimination against pregnant women and those on maternity leave.

One major national mortgage broker, John Charcol, has recently had a dispute with a High Street lender over a mortgage application from a borrower on maternity leave.

The couple, with the mother off work, could easily have afforded the loan and met the bank’s own rules, but were suddenly turned down flat.

Ray Boulger, the broker’s senior technical manager, says: ‘Being on maternity leave can be a real issue. In this case, the borrower had just started on maternity leave, on full pay for three months before dropping to half pay — which is quite good — and was planning to go back to work.

‘Yet the mortgage lender turned down the application. It only went through on appeal after we had it overturned on the grounds of discrimination laws and stressing the affordability.’

Rather than being an isolated incident, the case reflects growing unease that lenders, worried about bad debts and a loan’s affordability to borrowers as the economic squeeze continues, are failing to treat applicants equally.

In recent months banks and building societies have taken an increasingly hard line on mortgage applications in advance of new rules from the City watchdog the Financial Services Authority (FSA). They are desperate to show they are lending responsibly, but it has led to accusations that many good borrowers are being rejected. Some banks have placed tough restrictions on interest-only loans — Nationwide BS and Santander now insist on 50 per cent equity — as well as asking for larger deposits from first-time buyers and effectively barring the recently self-employed from borrowing.

Families with children are already being hit hard as lenders now factor in the extra expense of having children on how much you can borrow.

For example, a couple without children looking to buy a house whose joint earnings are £50,000, could secure as much as £250,000 from Nationwide BS. However, says research from broker London & Country, this would drop to £225,700 — a fall of nearly 10 per cent — if they had two children.

And it would be further reduced if school fees or further child-minding costs were included.

The FSA says it is monitoring the behaviour of banks. In its recent proposed rule changes, it notes pregnancy and maternity as ‘a potential area for concern’, although it adds: ‘Firms should not have underwriting processes in place which discriminate against pregnant women or those on maternity leave.’

In November, a report from the Institute for Public Policy Research (IPPR) suggested some banks and building societies are refusing to take women’s salaries into account when assessing affordability for a home loan — even when they earn significantly more than their partner in a relationship — because of an assumption they won’t return to the workplace.

Although many in the mortgage industry dismissed the findings, the IPPR reported cases where a woman was told her salary couldn’t be considered ‘in case you don’t return to work’ or was told ‘we can’t be sure you’re going to go back to work and so might default’.

Lynne Featherstone, Equalities Minister, who is liaising with the BBA on the matter, says: ‘It is completely unacceptable if banks discriminate against women. They should receive exactly the same service in accessing financial help as their male counterparts.’

A drop in household income forced by most maternity leave periods can catch out couples who apply for a home loan when one partner is pregnant or on maternity leave.

What new mothers get paid depends entirely on their company, although the bare minimum is six weeks at 90 per cent of your full pay followed by 33 weeks’ statutory maternity pay at a maximum of £128.73 a week.

Some firms offer three or more months at full pay followed by the same period again at half pay.

But many borrowers don’t realise lenders treat loan applications from those with new-born babies differently, says Mark Harris, chief executive at broker SPF Private Clients.

He says: ‘When one partner — usually the mother — takes up to a year off work, banks and building societies want extra reassurance that monthly mortgage payments can be met.’

This can be a problem for couples, even if the mother plans only to be off work for a short period or they make financial plans to cover mortgage payments during maternity leave.

David Hollingworth, of London & Country, says: ‘In many circumstances, the lender will only consider your income at the time of your application, rather than the usual pay packet. So if, when applying, you’re only getting the weekly statutory maternity pay, this won’t be very much at all.’

In some cases, new mums are asked to present a letter from an employer showing an estimated date for return to work; lenders including Nationwide and Co-op will routinely ask for this during an application.

A spokesman for the Council of Mortgage Lenders says: ‘Lenders are expected to ask borrowers about, and to take account of, any ‘foreseeable changes’ (such as reduced income or increased expenditure) that the borrower knows may affect their ability to pay the mortgage.’

In the past, family and dependants played much less of a role, since the amount you could borrow was more heavily based on income multiples.

Source: ' ThisIsMoney '

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