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Are childcare costs unfairly stopping parents getting a mortgage?

One in six families have been offered a smaller mortgage because of childcare costs – or have even been rejected

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New research from uSwitch has discovered one in six families who applied for a mortgage in the last ten years say they’ve been turned down or offered a lower loan because of childcare costs.

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Why are families being rejected for mortgages?

Following the Mortgage Market Review in 2014 and the introduction of stricter mortgage eligibility criteria, many lenders now take childcare costs into consideration as part of their affordability assessment.

Two thirds of families hide costs

Childcare costs have risen 38% in the past five years, and more than two thirds of the families affected say they have felt the need to hide the true cost from lenders in an attempt to secure a better deal.

Parents have resorted to several different tactics to temporarily reduce their childcare outgoings as they applied for mortgages.

  • 30% relied on grandparents for free childcare
  • 27% asked friends to pick up kids from nursery or school
  • 23% reduced their working hours.

Of the parents who tried to cut down childcare costs when they applied, over half did so as they were worried the extra expenditure would prevent them from securing the best mortgage rates, while 48% feared their application would be simply be rejected.

High levels of mortgage anxiety for parents

Unfortunately, however, these actions have a significant emotional impact: 60% of parents experienced high levels of anxiety and nearly 48% said the added stress caused arguments in their relationship.

Ages of children not taken into account

Only 39% of families were asked how their childcare costs may change as their children got older when applying for a mortgage.

This comes despite the fact that childcare costs can drop by up to half between the ages two and three, when the government’s free childcare scheme kicks in.

Parents facing a “double whammy”

Tashema Jackson, money expert at uSwitch, says

“Parents are being stung with a financial double whammy. Not only are they having to cope with sky-high childcare costs, but this burden is also impacting their ability to secure the best mortgage deal.

“It’s worrying that many feel under pressure to conceal these costs during the mortgage application process, as this may have a severe impact on their ability to meet repayments in future.

“While lenders have a responsibility to make sure people only borrow within their means and can afford future repayments, they also need to reassure homebuyers that their whole financial picture is being considered.”

Read more…

  • Mortgages explained – Mortgages come in different shapes and sizes to suit all needs, this guide can help you understand which mortgage is right for you
  • What size mortgage can I get? – Finding the right size of mortgage you can get before you start house hunting is a sensible move to help you set your budget.
  • How to get a mortgage – To get a mortgage you need to have at least a 5% deposit for a home as well as meeting affordability criteria with a lender.

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