£100,000 mortgage penalty for sending your child to nursery

FAMILIES where both parents work are being penalised by lenders when they apply for a mortgage.

For the first time, we can reveal how banks slash the loans they offer to borrowers whose children go to nursery, where fees are soaring, or are looked after by a nanny.

Parents who pay for childcare are having a third stripped off the amount they can borrow to buy a home.

It means a couple who each earn £30,000 and pay £920 a month for two children in childcare can typically borrow £100,000 less than a family with the same overall income, but where one parent stays at home.

Our investigation found parents are also hit if they send their children to schools where they have to pay for tuition.

Parents paying a typical £1,343 a month in private school fees will have £150,000 shaved off the amount they can borrow.

And couples planning to take maternity or paternity leave are being told to prove they will return to work within three months — or they will have to accept a smaller loan.

Experts said the blows would be a ‘huge shock’ to young families, many of whom are already struggling to get on to or move up the property ladder.

They are being grilled on their spending under intrusive tests introduced two-anda-half years ago.

In a crackdown on the risky loans behind the 2008 financial crisis, banks check your spending on meals out, holidays, gym memberships and TV packages.

The less you have left over at the end of the month, the smaller the mortgage you will be offered.

Until now, it was unclear exactly how much lenders deducted for childcare costs — which for many families last only three or four years of the typical 25-year mortgage term.

The revelation that £100,000 is commonly taken off could mean that young families have to rent until their children go to school, they change jobs or go part-time.

Daniel Bailey, of mortgage broker Middleton Finance, says: ‘People don’t think about how having kids might affect the size of the mortgage they could get — why would they?

‘So it’s a huge shock when they realise their bank won’t lend them as much.

‘It’s vital they know how much it can affect their application, so they can get their affairs in order before applying.’

Childcare costs have rocketed by a third in the past five years. Putting a child under two in a day nursery for 25 hours a week costs an average £115 a week, or £5,980 a year, according to campaign group Family and Childcare Trust. This jumps to £212 a week, or £11,024 a year, if the parent is working full-time.

Until the financial crisis, mortgage lenders happily offered borrowers big loans without even asking how much they were paid, let alone grilling them on their outgoings.

In 2014, new rules from the Financial Conduct Authority, the City watchdog, meant lenders needed cast-iron proof that borrowers could afford monthly repayments.

Research by mortgage broker London & Country found the big banks make huge deductions if you declare childcare costs.

At the Halifax, a couple who have two children and a joint income of £60,000 could borrow up to £285,000. If they spend £920 a month on childcare, their loan would be capped at £190,370 — £94,630 less.

The amount Barclays will lend to the same couple falls from £300,000 to £198,500 — a reduction of £101,500.

Nationwide will lend up to £285,000, falling to £203,900 if they pay for childcare — a difference of £81,100.

Santander offers £300,000 to a couple with no childcare costs — but this falls to £219,488 if there are nursery bills to pay. At HSBC, the maximum falls from £300,000 to £229,800.

If parents send their children to a private school, the loan is reduced by a similar sum.

A couple with no childcare costs, but £16,119 a year in school fees, would be offered a maximum of £130,520 by Halifax, down from £285,000.

Pregnant customers planning maternity leave — and those already taking time away from work — could also find their loan capped.

Most lenders want to see a date has been agreed for your return to work and evidence of the income you’ll get.

Some, such as Tesco Bank and Virgin Money, will take your full salary into account only if you’re due to return within three months. If you plan to take a longer maternity or paternity leave, it will demand proof that you have sufficient savings to cover any shortfall.

David Hollingworth, of mortgage broker London & Country, says: ‘This is to ensure borrowers don’t take on debts they can’t afford. Childcare costs can be sky high.’

Bernard Clarke, of the Council of Mortgage Lenders trade body, says: ‘Under new rules for lenders, a couple with family commitments is not able to borrow as much as a couple who earn the same amount, but who do not have children.’

Barclays, HSBC and Santander all say that, as responsible lenders, it’s right they consider a customer’s ‘complete financial picture’ to make sure they can ‘afford their mortgage in the short and long term’. A spokeswoman for Nationwide says applications are assessed on an ‘individual basis’ with all sources of income taken into account and a ‘full assessment of committed and essential expenditure.’

Halifax says it takes into account child tax credits if the customer is entitled to them.