As mortgage advisers, we frequently hear the question, “Can I get a mortgage while on maternity leave?”. Contrary to some misconceptions, the answer is yes, provided you meet certain criteria. And your chances of success can vary depending on factors such as where you are in parental leave and the bank’s policies.
Don’t assume anything
Many applicants assume that simply having an existing home loan with a bank guarantees loan approval for a top up. However, this is not always the way.
“It is important for people to understand that it is not the case that simply because you’re with the bank they will lend to you at any time, even while going on maternity leave. There are very specific rules about how they will assess loans while you are not working”, emphasises Aseem Agarwal, Head of Mortgages at Global Finance.
Each bank has its own policies for assessing mortgage applications, and most do not consider income from maternity leave, including the 26 weeks paid parental support. Income is not included in the assessment until the applicant has returned to work and started earning again.
Different banks look at income differently
While some may be more lenient, most banks typically do not consider income from individuals who are not currently employed, which is how they regard maternity leave. This means that even if you’re receiving paid parental leave from the government, the bank may not count it as income when determining if you’re eligible for a home loan.
Future income considerations
From the lender’s perspective, applicants on parental leave present higher risk. Banks are cautious about future income prospects. There’s uncertainty about whether the individual will resume their previous level of income or work reduced hours. Then there is the issue of the additional expenses, such as childcare, which they will want to factor in when assessing the eligibility for a loan. This uncertainty makes lenders hesitant to rely on projected income until the applicant is back at work and earning again.
Bank policies on return-to-work timing
Some banks therefore have specific policies regarding the timing of your return to work. They may impose stand-down periods during which they do not consider income from individuals on maternity leave.
For example, if you’re applying for a loan and your return-to-work date is more than 90 days away, the bank may not include your future income in their assessment. Essentially, they won’t give you a loan if you’re not close to going back to work. However, others may be more flexible. Other banks might give you a loan even if you’re not going back to work quite so soon.
This happened to a Global Finance client recently. Their current bank had told them that they would not lend the amount they had asked for until the client returned to work, citing uncertainties about future income levels. They then approached Global Finance about borrowing while on parental leave. Fortunately, the team was able to find other options open to them.
Switching banks may be an option
Aseem tells us that: “In some cases, it’s best to switch banks if you are wanting to take out a new loan or a top up. One of the big advantages of using a mortgage adviser is we have a choice of banks, so we when we get asked “can you get a mortgage while on maternity leave” we know there are banks that we can approach on your behalf”.
Benefits of working with a mortgage adviser
In cases where the current bank declines lending during parental leave, working with a mortgage adviser can really help. Our advisers have access to multiple banks and can find one that may be more accommodating to applicants’ circumstances.
Providing evidence of return-to-work intentions
Providing evidence of your intention to return to work will also help your application. You’ll need to show the bank that you will return to your job at the end of your period of parental leave, and you’ll need to be specific. Applicants will need a letter from their employer, payroll or HR, or whoever it is authorised in the company to issue the letter, confirming specific details such as pay rate, work schedule, and return date.
“Being proactive and planning ahead when seeking a mortgage while on maternity leave pays off”, Aseem tells us.
Impact of additional expenses
You should demonstrate financial planning for post-parental leave expenses. Lenders typically want assurance that applicants have planned for things such as childcare costs and can still afford mortgage payments. If you’re entitled to other benefits when you return to work, such as Working for Families and Best Start payments, you should also show proof of these with a letter from the IRD.
Planning ahead
If you’re thinking of going on parental leave and want to apply for a mortgage or refinance an existing home loan, you need to fully understand the specific rules and lending policies regarding maternity leave of the bank you’re with before you do so.
“The key to success lies in being proactive, informed, and strategic”.
Seeking advice from a mortgage adviser before or during maternity leave can help clarify your options and improve your chances of securing a loan.
It is possible to secure a home loan while on parental leave
Securing a mortgage while on maternity leave requires careful planning and expert advice. Help from a mortgage adviser can increase your chances of success. Our team can ensure you understand the factors that banks consider during the loan application process, and we can explore alternative options should you find your bank unwilling to lend until you have returned to work.
If you’re looking at buying a property or topping up an existing mortgage and would like to talk further about any issues we have raised in this blog, reach out to Global Finance on 09 255 5500 or info@globalfinance.co.nz for expert advise.
The information and articles published are true to the best of the Global Finance Services Ltd knowledge. Since the information provided in this blog is of general nature and is not intended to be personalized financial advice. We encourage you to seek Financial advice which is personalized depending on your needs, goals, and circumstances before making any financial decision. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or its employees liable.