Married with children? Then you'll get a smaller mortgage

Published 09th Feb 2011

Mortgage lending giants are 'penalising' parents for having children by slashing the amount of money they can borrow, experts have warned.

Childless couples can borrow up to 50 per cent more than young families - despite earning the same salary.

Lenders argue parents have less to spare for a mortgage because of spending on children's clothes and education.

But mortgage experts say lenders are ignoring the fact that parents are less likely to spend money socialising.

The shocking gap highlights a major problem facing thousands of parents who want to buy a home or remortgage when their loan deal expires.

The biggest losers will be parents who took out a super-size mortgage before the credit crunch, but may struggle to find a new deal.


Our research examined a couple who both earn Britain's average salary of £25,000, and looked at the maximum they could borrow.

For example, ING Direct would lend £200,000 to a childless couple. But if they have three children, the amount plunges to £158,715. The difference is even more extreme for lower earners, such as a couple who both earn £20,000.

ING Direct said it would lend £160,000 to a childless couple, dropping to £116,000 if they have two children and only £77,000 if they have three children.


WHAT YOUR LENDER MAY ASK

Does your employer deduct pension contributions or payments for childcare or healthcare?

Can you prove where your deposit came from? Is it a gift or savings rather than an informal loan?

If you are self-employed, do you have accounts for the past two or three years?

Do you have proof of an investment to repay capital borrowed on an interest-only mortgage?

Can you prove your bonus payments? Lenders will now usually take into account only 50 per cent of any non-guaranteed income.

This 'child penalty' is repeated by most major mortgage lenders in what the Council of Mortgage Lenders describes as a ' dysfunctional' market.

Santander would lend £237,625 to a couple with no children and a gold-plated credit score, but only £219,485 if they have two children.

Nationwide, the country's biggest building society, would hand over £225,000 to the childless couple, but only £217,100 to a couple with three children.

'If you've got children, you have got less money,' says David Hollingworth, of independent broker London & Country.

'Lenders are putting ever closer scrutiny on what your expenditure is and children will come into play.

'If you have got children, the chances are you will be lent a smaller mortgage.'

The situation is likely to worsen because many lenders factor child benefit into their 'affordability' calculations when working out parents' income.

In 2013, it will not be paid if one or both parents is a higher rate taxpayer. As a result, couples will be deemed to be poorer by the lender's affordability calculations and allowed to borrow even less.

A spokesman for the Council of Mortgage Lenders says: 'There is more and more pressure on lenders to take account of affordability, and this includes children.

'There is a danger that the balance of regulation puts too much emphasis on lenders to take responsibility for judging the borrowers' ability to pay.'

It is a dramatic change from a decade ago when lenders would simply hand out a multiple of a couple's earnings, typically three times their joint salary.

Today, they do complicated affordability checks, examining everything from how much is spent on household bills to the amount spent on child maintenance paid to former partners.

It comes as the number of mortgages handed out to buy a home has collapsed to just 1,500 a day, compared with nearly 4,000 a day during the boom years.

Nick Hopkinson, a director of the property firm PPR Estates, says the 'mortgage famine' is dragging on, adding: ' The property market remains stuck in a deep winter freeze.'

Mortgage experts say lenders ignore the fact parents do not necessarily face bigger costs than couples without a young family.

For example, a childless couple may jet off on several foreign holidays a year and eat out most nights, while a couple with children may stay in every night and opt for 'staycations'.

'Couples with children are being penalised by mortgage lenders,' says Melanie Bien, of mortgage broker Private Finance.

'The rationale is that they have higher outgoings, so can't afford as big a mortgage, but this seems unfair when their social lives will be more limited and therefore cost less.'

David Hollingworth says that the problem is less extreme for a couple with a high credit score - those without a single black spot on their financial records. He says there is 'little impact' on the amount they can borrow if they have children, but a 'more severe impact' if they have a medium or low credit score.

A Santander spokesman says: 'As a responsible lender, all our lending decisions are based on affordability and take into account the customer's overall financial position, including incomings, outgoings and any dependents, to assess the customer's ability to meet their repayments.'

A Nationwide spokesman says: 'The amount we lend will vary with each customer's circumstances. Families with children tend to have different expenditure levels to those without.'

Source: ' Daily Mail '

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