Eco-Friendly 'Green Mortgages' To Become The Norm
- Green mortgages are a type of mortgage that offers favourable terms for those buying energy-efficient homes.
- These favourable terms can include cashback on green mortgages or lower interest rates.
- Those looking to qualify will usually need an EPC (Energy Performance Certificate) at A or B.
Recently, the UK population becoming increasingly eco-conscious has allowed 'green mortgages' to find their place in the mainstream market. They offer borrowers preferential rates directly linked to the energy performance of their properties. As a result, it gives home buyers and investors an extra impetus to look at newer, more eco-friendly properties to keep costs down.
What Are Green Mortgage Products?
The fact that many of us aren't aware of what these product options are is one of its most significant struggles. The sector offers better-rate mortgages for properties with eco-friendly energy performances. Therefore, in practice, if you are choosing to buy an energy-efficient property, your mortgage rates will be better!
Research from Intermediary Mortgage Lenders Association (IMLA)found that 43% of borrowers hadn't heard of Green Mortgages. More than a third of borrowers also wrongly believed green mortgages would cost more. The statistics show that around 77% of eco-aware lenders offer green products that are equal to or cheaper than a standard mortgage. Currently, only a relatively small number of lenders provide green mortgages, but the survey saw 29% planning to introduce such a product. A further 35% of agents also plan to advise buyers on green mortgages in future.
Why Are 'Green Mortgages' Becoming Popular?
As of yet, there are only a few lenders in the UK offering better-than-normal rates on eco-friendly properties. However, a growing trend for eco-friendly products across sectors has provided an added incentive for investors. When focussing on eco-trends, it is evident that this is a growing one, with more people becoming dedicated to doing their part against the devastating effects of climate change. This entices more buyers to steer towards eco-friendly products and properties. There are plenty of indicators that eco-friendly mortgage products will improve in number. Lenders and advisers alike are beginning to recognise the potential of green mortgages and advise buyers accordingly.
The effects of the Covid-19 lockdown may have spurred this by providing a glimpse of a world with reduced carbon emissions. As a result, the growth of green finance is sure to continue to accelerate. The IMLA also reported that 74% of lenders think green mortgages will be more significant in the finance sector in future, and increased interest has already been noted since the pandemic outbreak.
The reasons for this growth in popularity are vast and varied, but most regard either the environmental or financial factors. Some buyers wish to improve their carbon footprint by living in a more environmentally friendly property. However, cost savings entice more than half (53%) of consumers.
What Are the Eligibility Criteria for a Green Mortgage?
While each lender will have their own set of eligibility criteria for green mortgages, some common requirements include:
- Need to meet a certain level of energy efficiency
- Will need an EPC (Energy Performance Certificate) at A or B
- The property is a new build
Your eligibility for a green mortgage, as with any other type of mortgage, will be dependent upon a range of different factors, and can be greatly influenced by your current circumstances and financial situation. For example, if you have an adverse credit history, or an unstable income the lender may be more hesitant to approve the mortgage.
If you're unsure about your eligibility for a green mortgage, or a mortgage altogether, it might help to discuss your options with a mortgage broker. Mortgage brokers can help advise you on the options that'll work best for you, basing this off of your current circumstances and other details you provide them with.
What Issues Does The Green Market Face?
Eco-friendly properties face the problem of cost when going green. 27% of property owners agree that affordability is an issue for them. Many investors do not find it worth the price of improving energy efficiency. To combat this, the Government has created The Green Homes Grant which could act as a great incentive. Green mortgages work as a great alternative option for customers, but there are considerable barriers which still stand in the way towards growing the green finance sector.
The Government has committed to making Britain carbon-neutral by 2050 and, to do so, the existing housing stock will have to make changes to create more energy-efficient homes.
Will First-Time Buyers Set To Receive Low-Deposit Mortgage Deals?
Prime Minister Boris Johson has pledged 95% mortgages for two million first-time buyers. The Government unveiled plans for 'generation buy' at a virtual Conservative Party conference. The Prime Minister said: "We need now to take forward one of the key proposals of our manifesto of 2019: giving young, first-time buyers the chance to take out a long-term, fixed-rate mortgage of up to 95 percent of the value of the home — vastly reducing the size of the deposit."
How Will It Work?
The Government has revealed intentions to make 95% mortgages more extensively available for first-time buyers, but it is still uncertain how the proposals would work. The Prime Minister discussed the issue facing two million prospective first-time buyers who could afford to pay mortgage repayments but are having difficulty getting approved for a home loan. He believes the Government has a role to play in unlocking low-deposit loans to generate 'the biggest expansion of homeownership since the 1980s'.
The proposal is also reminiscent of government-backed low-deposit mortgage schemes introduced after the 2008 crash. A similar program was launched as part of the Help to Buy plan during the 2008 recession because of banks withdrawing their high loan-to-value mortgage products. Previously, there were 100 percent loans on offer for buyers.
The Government has not released any details on how the scheme might work. According to a report by The Telegraph, one prospective design is for banks to get rid of the rigorous stress tests that were introduced after the financial crash. Rather than the stress tests, the Government could impose a guarantee for these higher loans. This would remove the risk placed on lenders, allowing them to offer low-deposit loans without worry. The tests are designed to assess whether a buyer will keep up mortgage repayments should interest rates rise from their current rate of 0.1%.
How Could The Scheme Help First-Time Buyers?
Boris Johnson said that the scheme will help up to two million people who can afford mortgage repayments but can't currently find home loans. While high loan-to-value mortgages were widely offered at the begging of this year, the COVID lockdown caused many lenders to withdraw their products. Banks and building societies were inundated with a backlog of inquiries when the housing market reopened, and some became overwhelmed with the demand. The decision to remove the low-deposit mortgages may have been due to economic uncertainty - as the economy walks a tightrope many lenders wish to distance themselves from providing riskier loans.
In theory, first-time buyers will be able to buy with a five percent deposit once again under the new proposals. The result hopes to "turn Generation Rent into Generation Buy." However, buyers should still be aware of the possible risks that remain. When you buy a property with a low deposit, there is often a greater risk of negative equity if the property market doesn't rise but instead declines.
What is Regulated and Unregulated in Bridging Finance?
Bridging loans or bridge finance, will typically fall under regulated or unregulated activity - and this can have quite an impact on the application process, eligibility and terms that you receive. In this article, Octagon Capital aims to explain the difference between regulated and unregulated bridging - and how you can find the best product for you.
As a rule of thumb:
- Any residential bridging is regulated (if it is their primary residence)
- Any commercial bridging is unregulated (including offices, garages, warehouses)
| Regulated Bridging | Unregulated Bridging |
| 70% Maximum LTV | 75% Maximum LTV |
| First and Second Charge | Mostly Second Charge |
| Subject to Status | All Credit Statuses Considered |
What is the regulation for bridging loans?
When it comes to regulated bridging loans, the FCA is the main regulator in the UK for any mortgages or deals. Essentially, they have strict regulation and guidelines in place to ensure that borrowers do not risk losing their primary residence when borrowing and there is adequate protection in place.
So typically, you can borrow against residential properties, such as buying a place for buy-to-let purposes. However, you cannot borrow a regulated bridging loan if it is secured against your own primary residence.
Part of this is the Mortgage Credit Directive (MCD) which is an EU framework for mortgage firms and is overseen by the FCA. There are a number of measures in place to offer transparency to customers, such as showing them any rates beforehand as an APRC and also giving applicants a reflective period in case they want to change their mind or request more information.
For the regulation surrounding SMCR, this is for senior managers of investment firms under the FCA - and does not apply in this case.
Borrowing against flats and places of primary residence will typically fall under regulated activity
Regulated bridging loans and mortgages are available by first charge or second charge
First charge loans
This refers to the 'first charge' that is taken from your bank account each month, so often refers to as your first mortgage, which could be against your main residence and property that you live at, or an investment.
Second charge loans
This refers to the 'second charge' from your bank account, taken out after your first charge. So you could have a mortgage against your home (this is your first charge) and then another mortgage or bridging loan against an investment product (this is your second charge). You can also get a second charge against your existing home, known commonly as a second mortgage.
Importantly, the amount you can borrow on your second charge is less than your first charge, since it is second in the queue when it comes to repayments each month.
You can use the same lender for both first and second charge, or use a different one for each.
What is unregulated bridging loans?
When bridging loans are unregulated, they are conforming to some essential guidelines, but there are a lot of flexibilities when it comes to the criteria and lending to people with adverse credit histories. Loans in this nature are commonly by means of second charge, and with faster processing and applications, they typically make up around 50% to 60% of all bridging deals (regulated rarely gets more business than unregulated in this sector).
Unregulated business is often for commercial properties including:
- Offices
- Petrol garages
- Schools/ Hotels/ Farmhouses
- Warehouses
- Factories
- Gyms
- Other business purposes
What does non-status bridging loans mean?
Non-status bridging means that it does not take credit status into account. So where regulated mortgages and most financial products require a strong credit score, this is not the case with non-status lending. Therefore, lenders are willing to take a view on adverse credit histories or limited credit histories and may look at other factors such as the potential value of your property and the opportunity.
Chancellor Sunak Proposes Immediate Change to Stamp Duty
Rishi Sunak has stated that a stamp duty cut will not be delayed, following warnings that this would cause considerable damage to the housing market. Talk of delaying the stamp duty cuts have raised fears that property purchases would grind to a halt, as many would simply wait until these cuts were implemented to save themselves thousands of pounds.
Economists and property experts have voiced their concerns over implementation of the cut, originally suggested to be put in place Autumn this year. Such experts have claimed that waiting until this long to put the cut in place could cause a deep freeze to the housing market.
Institute for Fiscal Studies’ Paul Johnson has commented that Sunak must choose to launch the stamp duty cut tomorrow or rule it out entirely, and furthermore that “To do otherwise could ruin the housing market for months to come”
Economist Julian Jessop commented the following on the matter: “the announcement of a stamp duty holiday, but not until the autumn, could kill the housing market in the meantime.”
“There has been similar speculation of an across-the-board VAT cut, which could delay spending on other big ticket items too.”
Others have claimed that this cut to stamp duty could help to drive the demand for housing throughout the U.K., former Tory Chancellor Philip Hammond commenting on the BBC Radio 4 Today programme that:
'Cutting stamp duty, reducing VAT in particular sectors, are certainly ways to bring forward or manage demand.
'But I think the Treasury officials who will have been working up all sorts of proposals for him during the lockdown will be telling him that the history tells us that cutting VAT or cutting stamp duty can bring forward demand but it doesn't overall increase the level of demand, it simply shifts the pattern of it.'
This cut is expected to be part of Sunak’s coronavirus recovery package, including ‘holiday’ from the charge of six months. Sunak is under increasing pressure to set out future plans for financial support for businesses, as many sectors continue to struggle from the effects of the COVID-19 pandemic.
The stamp duty cut is said to be the focus for the Chancellor’s financial address tomorrow, which is also expected to discuss the £2 billion to be used for homeowners to better insulate their properties, and the £1 billion that will attempt to make hospitals and schools greener.
Mortgage Brokers Expect a 6 to 9-Month Recovery
The COVID-19 lockdown has had a considerable impact on the property industry, potential property buyers limited in viewing new potentials, whilst those in the bridging finance sector were forced to stop all lending, able to only work on existing deals they were already managing.
It’s been confirmed by mortgage lenders all over the U.K. that there will be significant restrictions to lending criteria. On top of this, there have not been any property auctions to have taken place recently – an important source for generating commercial deals within the industry.
An MT Finance survey found that 54% of participants predict the economy to take 6 months to a year to recover from the impacts of COVID-19, 14% seeing a recession in the foreseeable future.
In the same survey, 40% of mortgage industry brokers feel the property market will need six to nine months to recover properly from the impacts of COVID-19.
Additionally, MT Finance also found that 27% expect it to be a year or more for the market to fully recover.
Gareth Lewis, MT Finance commercial director, commented: “These results offer an interesting insight into just how long those working in the industry believe the UK property market and wider economy will take to recover.
“While the government’s furlough scheme has evidently had a positive impact on unemployment- some further government stimulus would be very welcome to resurrect the property market once lockdown is lifted, such as a stamp duty holiday or concessions.”
How Much Deposit do I Need for a Bridging Loan?
When you enter a bridging loan, you will usually need to put down a deposit. This is a lump sum paid upfront. The amount you will need to pay as deposit depends on the amount you want to borrow, the value of the property you are looking to purchase and the LTV (which is dictated by your lender).
Your deposit will be at least 20% to 25%, as the LTV available on a bridging loan is 70% LTV or 75% LTV unregulated. The deposit represents the proportion of the property you own outright, the LTV is the rest of the property which you pay off with a bridging loan.
What is LTV?
LTV (otherwise known as the Loan-to-Value) is the ratio lenders use that shows how much you may be able to borrow versus the value of the asset you want to borrow against.
For example, if you wanted to purchase a property worth £100,000 and wanted to borrow £75,000, the LTV of the loan would be 75%. Your deposit would be the other 25% which would be £25,000.
LTV Key Features
- Borrow up to 75% LTV regulated
- Borrow up to 100% LTV unregulated
- No deposit bridging loans available
- 100% LTV may require additional secured asset
What is the difference between regulated and unregulated LTV?
Currently only part of the bridging loan industry is regulated by the FCA. The FCA are the Financial Conduct Authority, which regulate financial services firms in the UK with the goal of protecting consumers and ensuring the integrity of the UK financial industry.
A regulated bridging loan would be one which falls under the protection of the FCA, these are usually residential ones. Regulated bridging loans aim to offer consumers a heightened level of protection and peace of mind.
At this time, all commercial bridging finance is unregulated, meaning the FCA does not supervise this area of the industry. If you’re securing a loan for an investment property, a commercial building, or for a buy-to-let it will not be regulated, meaning you VTL will be 75%.
Can I get a bridging loan with no deposit?
Yes, you can get a bridging loan without putting down a deposit. However, you may need to look at different types of products such as mezzanine finance. Mezzanine finance allows companies to give up some of their equity to secure a loan. You can find out more about mezzanine finance here.
Can I Use a Bridging Loan for a Deposit?
Yes, you can use a bridging loan as a deposit on a property. Bridging loans are commonly used by those stuck in between the purchase of a new property and the sale of their current one, not wanting to lose their dream home by delays in selling their existing home.
These types of borrowers can use a bridging loan to pay for a deposit on a new property, which can then be repaid once their existing house is then sold. In these types of situations, bridging loans can offer a temporary solution, with borrowers able to secure their dream house and not miss out before their current house is sold.
How To Use Remortgaging to Release Equity
Many homeowners in the UK are taking advantage of low mortgage rates and through remortgaging, are finding ways to release equity from their homes. According to Remortgage Quotes Online, you can switch your standard variable rate (SVR) from around 4-5% APR to a fixed remortgage rate of 1.3-1.7% during the introductory offer.
The result of record low mortgage rates means that you can potentially borrow more money against your home, whilst keeping your mortgage payments each month roughly the same.
Releasing money through remortgaging is mostly used for:
- Home improvements
- Debt consolidation
- Christmas shopping and presents
- Family holidays
- Gifting to other family members
How Can You Release Equity Through Remortgaging?
To be effective, you will need to have the following:
- Good amount of equity in your home
- Good/fair credit rating
- Good affordability to remortgage
- Stable income (not recent fall)
In order to remortgage, you will need to meet the checks from the mortgage provider, which have become more stringent over the years. They want to seem a strong affordability, which means that your salary is stable or going up (not falling drastically) and your expenses are not going beyond your means.
If you have a poor credit rating since getting your original mortgage, this can impact your chances of getting a new mortgage deal - or you could be stuck on your standard variable rate.
Naturally, to release money from your home, you will need some equity in it, which is achieved by paying off your mortgage on time for several years.
We review some of the options below:
Release Money When You Remortgage
When applying for a remortgage, you can ask to release or borrow money too - and the payments will just be adjusted to your existing mortgage loan. You may have heard the phrase or your parents complain "Well, I will need to remortgage the house for that one." And this is exactly the case.
The more equity you have in your home the better, otherwise releasing through a remortgage with little equity will just increase your monthly payments.
Second Charge Loan or Advance
You can get a 'top-up' when you remortgage, also known as an 'advance' or simply a second charge loan.
In this instance, you are getting an additional loan to your mortgage and this will mean having two loans on different terms. One could be fixed for 5 years and the other could be variable for 2 years. You cannot borrow as much with the second loan as with the first and the amount you can borrow is based on your affordability. Failing to keep up with repayments can have a negative impact on your credit history and cause you to lose equity in your home.
Equity Release
This is only available to homeowners over the age of 55 and this allows you to release equity from your home, and pay off your mortgage at the same time. This is becoming an increasingly popular for the ageing population in the UK and is currently used by around 60,000 households per year, who borrow on average around £80,000.
Through equity release, you are able to receive one large sum amount, upfront, which is completely tax-free. In exchange, you simply give up some equity in your home, which is claimed by the lender when you die or go into long term care. There are monthly interest repayments or you can choose to have an interest only or rolled up interest added to the full outstanding amount. You also benefit from the house increasing in value, which is then used to pay off your outstanding debt.
You can typically borrow around around 25% to 60% of your property's value through a lifetime mortgage, which is a type of equity release product designed to last your lifetime. Or if you want to borrow money, you can use a home reversion scheme to borrow up to 80%, but this will mean physically selling of your home and you will not be able to benefit if it goes up in price in the future.
How does mortgage refinancing work?
When deciding to take out a bridging loan or not, it can be common for property developers to decide as a strategy to refinance their bridging loans once they have reached the end of the loan term. But what exactly does this mean when it comes to mortgage refinancing? We explain in further detail everything you need to know about this strategy.
Mortgage refinancing explained
In the simplest of terms, refinancing your mortgage is when a borrower who has taken out an old loan (this may be a mortgage or a bridging loan) to then exchange this for a brand new mortgage term, interest rate as well as also potentially a new mortgage term too. Some may decide to get a new mortgage with their existing lender or decide to refinance their mortgage with a new lender entirely.
You can also refinance bridging loans to help with your mortgage. A property developer may decide to opt for a second charge bridging loan in order to secure it against a property already has a mortgage outstanding. This is an option for those who are perhaps interested in raising funds in order to help carry out a renovation project (for example, to build an extension, create a loft conversion or other property improvement projects). This is because your main mortgage isn't being repaid, and you do not need to worry about early repayment charges that could be incurred due to the second charge bridging loan take out which is enabling you to raise the required funds.
How do I find the best mortgage refinancing deals?
If you are interested in the possibility of mortgage refinancing, then it is worth making sure that you are fully aware of:
- The percentage value of the home that you want to borrow against (the LTV ratio)
- What the current estimated value of your property is
- The annual income that you or anyone else who will be named on the new mortgage will be
You should also figure out what type of mortgage you would like to compare when it comes to mortgage refinancing. For example, consider the following:
- Tracker mortgages: this type of mortgage means that the mortgage rate that you pay is set a percentage above the base rate that has been created by the Bank of England (or your lender's standard variable rate). What this means for you is that if interest rates increase or decrease, the same will go for your mortgage repayments too
- Offset mortgages: that means your savings account and mortgage are combined together. In this scenario, that means the money which is in your savings account is counted as an overpayment (on a temporary basis) for your mortgage. This has the potential to save you a considerable amount of money over time when it comes to interest paid.
- Fixed rate mortgages: with this kind of mortgage, the interest rate is fixed for a period of time. In the majority of cases, this will be for a period of between two and five years in total. This can be a great option for you if you want to have the comfort of knowing exactly what your repayments will be costing you each month, without changing as a result of interest rates going up or down.
Is refinancing the right option for you?
It is worth noting that making the decision of mortgage refinancing is not the best decision for all homeowners. Some may consider mortgage refinancing to:
- To cut down on costs: some homeowners may choose to refinance their mortgage in order to benefit from lower interest rates overall or lower monthly repayments. It is estimated that almost half of all borrowers in the UK are in fact paying more than they need to on their mortgage
- Raising money: it can help to release equity in your home which can be particularly usefully if you are looking to consolidate existing debts or alternative release money for home improvements.
Who can consider mortgage refinancing?
Providing that you already have an existing mortgage, and meet the criteria set by the mortgage lender, you can be eligible for remortgaging. It may be particularly pertinent to you to consider mortgage refinancing if you are coming to the end of a discounted deal you were receiving, or are coming to the end of a fixed rate period on a mortgage.
Reasons You Might Be Declined For a Secured Loan
If you are looking to apply for a secured loan, it is important to know that there is a possibility that you may be rejected and if you know the reasons for that, you may be able to prevent it. You may have already applied for a secured loan only to be declined, but are unaware of why this has happened.
In this guide, for your clarity, we are going to look at some of the reasons that you may be declined for an application on a secured loan. But first, let’s look at what a secured loan actually is.
What is a secured loan?
A secured loan can also be referred to as a homeowner loan because a secured loan has the debt associated with it linked (or ‘secured’) to the loan borrower’s property. Secured loans, thus, are only available to be taken out by people who already own or are buying their own homes. A secured loan can be used to borrow anything from the £5,000 mark and upwards.
With a secured loan, the amount you are entitled to borrow, the duration of the loan agreement and the amount of interest which will be offered is wholly dependent on personal circumstances and the amount of free equity which you have in your property.
But if you do qualify as a homeowner, why might you be rejected by a lender for a secured loan?
Poor Credit History
Like with any type of monetary lending, your credit score can make or break your chances of borrowing or can affect the kind of deal available to you. You can read more about your credit score here.
If you have a history of missing payments or failing to repay your previous loans or on your credit card, this can seriously damage your credit history and thus, make you look like more of a risk to a lender.
If this is the case for you, there are things that you can do to improve your credit score including:
- Always paying your credit card statement in full, each month
- Only applying for loans when you need them – too many credit search footprints on your file could decrease your credit score
- Always pay back loans in full, with the interest
Have Made Applications For Payday Loans
Some secured lenders consider payday loans to be a very high risk financial solution and means that you might have been desperate for funds. Not all secured lenders view it this way. One major mortgage provider recently said that payday loans (Source: MY JAR) were fine provided that they were paid off on time. Some providers will not consider it an issue if it was several years ago. Other similar high-cost credit products include cash advances, pawnbrokers and logbook loans.
A Spouse with Poor Credit History
You may have a good credit score, but in actual fact, your legal spouse's credit history may be your downfall when applying for a secured loan. Seeing as marriage ties you in more ways than one, one way is being financially linked, you are seen as a risk if your husband or wife does not have a good credit history attached to their name.
Especially with secured loans, since they are for homeowners, it is assumed that you help either out financially and that the mortgage and so on will be a mutual responsibly.
Your Collateral is Not Valuable Enough
The collateral that you have to offer in order to secure it against the loan may not be seen as valuable enough to the lender. To them, if your collateral is of less value, it is more of a risk lending to you as they will not get their payment back if you fail to pay it.
For a secured loan, your collateral could be your property or a car, for example. If neither of these is deemed valuable enough, your loan request may be denied.
In a similar way, you may only have little equity on your house at the point of application. Basically, what this means is that you do not own enough of the property to gain a secured loan.
How Much Are You Asking For?
Depending on your needs, you may find that you are needing to borrow a little amount or a larger amount. It is true that the amount you are wanting to borrow can play a part in the lender's decision on whether or not to grant you a secured loan.
What Are You Planning on Using The Secured Loan For?
Likewise, a secured lender may refuse you based on the reasoning behind your loan. Many lenders will ask you this question as part of the underwriting process and if it is something they deem unfit, they simply will not grant you a secured loan.
Bridging loans
You may find that you are struggling to get a mortgage in place and time is running out before you lose out on a property which you are hoping to purchase. An option for you might be a bridging loan.
Essentially, a bridging loan is a type of short-term finance which aid you in ‘bridging the gap’ between you and the mortgage, allowing you obtain the property without a mortgage in place prior. Rather than losing a potential property, you can apply for a bridging loan and receive the money in one lump within a few working days. Once the property has been purchased and has access to more finance, you will be required to repay the loan.
Do you have to tell your mortgage provider if you change jobs or get pregnant?
Since changing your job or falling pregnant can have an effect on your finances, you may be earning or less in your new job and obviously, having a child is another outgoing expense.
Therefore, is it protocol to let your mortgage provider know about either of these life changing events?
According to a recent survey created by uSwitch, one in ten women between the ages of 25-45 said that they felt as though they had been discriminated against by lenders once they had expressed their desire to start a family.
Affordability rules which came in 2015 mean that some firms are now required to ask questions about changes in income.
If you fall pregnant
Women have advised to be made aware of the pregnancy pitfalls when applying for a mortgage or are currently paying a mortgage. Due to the change in rules, new parents who are applying for a mortgage from some of the largest lenders are being asked to prove that they will be returning to work after their maternity and/or paternity leave before they can be included in their usual affordability checks.
If the couple or individual is not going to be returning to work within three months, their “return to work” income may not be included in the overall checks. As a consequence, the price of the mortgage may be calculated based on their pay during the period of maternity or paternity leave.
Lenders such as Barclays, RBS and NatWest base their decision on the salaries on the applicants will be receiving after they have returned to work rather than the pay they will receive whilst they are on leave, which seems far more logical.
What can lenders ask about pregnancy?
Lenders are prohibited from asking you whether you are currently pregnant, planning a pregnancy or on maternity leave when you apply for a mortgage. This question would go against the Equality Act 2010 as plain discrimination.
Nevertheless, tighter lending rules mean that they are lawfully required, not just entitled, to take into account any future changes to your incomings – this then works for if you are just changing jobs as well. Of course, having a baby can have an impact on both parties so this should be taken into account by the lender.
They will ask if you are aware of any changes to your income in the near future and if you answer yes because of a pregnancy, the underwriter will look at whether you are able to afford the mortgage as though you already have an additional dependent. This basically means they will factor in any child care expenses.
You can also expect to be asked about your salary on your return to work, the length of your maternity or paternity leave and if you are planning to return to work full-time or part-time.
If you are changing jobs
It is the same premise as if you were to fall pregnant, lenders are now required to take into account any income changes. This could work in your favour if you are getting a larger salary as this will mean you may be able to snap up a better deal on your mortgage if you can afford to pay more off each month. So if you change jobs with a mortgage in place, it is vital as well wise to let your lender know and inquire whether a better deal is available to you if your income has been increased.
According to the Council for Mortgage Lenders, the information about your change in financial situation is gathered to “try to reduce the risk of borrowers taking on debt commitments that could become unaffordable.” Therefore, lenders will ask if you are aware of any changes to your income in the foreseeable future (whether this is due to a new arrival or change in job).
Consider a Bridging Loan?
If you are in need of cash to buy a house urgently but do not have time to wait for a mortgage to clear, an option for you might be a bridging loan. A bridging loan is a type of short-term finance which essentially ‘bridges the gap’ between you and the mortgage, allowing you obtain the property without a mortgage being cleared. Rather than losing a potential property, you can apply for a bridging loan and receive the money in one lump within a few working days. Once the property has been purchased and has access to more finance, you will be required to repay the loan.