MortgagesJun 15 2017

Self-employed unable to get mortgages due to parental leave

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Self-employed unable to get mortgages due to parental leave

Self-employed mortgage customers who take parental leave are being denied loans even if they can prove their income, it has been claimed.

While those who take maternity or paternity leave in a regular job have little difficulty in getting a mortgage when they return to work, brokers are finding it almost impossible to obtain a deal for self-employed customers in a similar situation.

According to London-based broker Independent James, a self-employed person consistently earning £100,000 a year but taking a year out on maternity leave would not be considered for a mortgage as their income would be judged too volatile – even if they could give evidence of projected earnings.

And although lenders say they will consider the applications on a case-by-case basis, the result is often disappointing, according to Independent James’ principal, James Carter.

He told Financial Adviser: “Someone could go back to work having had two years off if they have children and immediately [a lender] would take employed earnings, but if they are self-employed they will not look at it regardless of what they say.

“Often people who have children want to buy and move up the ladder to have a bigger house. When they do that, that is when they are scrutinised more.”

He added lenders may also restrict the loan size because they would not ignore the lower income from the period of leave.

Rebecca Robertson, director and financial planner at Chatham-based Evolution for Women, added: “From my experience, lenders use the last year’s self-assessment, which would be based on the previous year’s income. 

“If they are self-employed, they only receive statutory maternity pay, and they are likely to see a drop in income for the time they are off work.”

The lenders who responded to Financial Adviser all said they would consider such applicants on a case-by-case basis.

Leeds Building Society said it would look at a range of factors, including the nature of the business – for example, if it could be covered by someone else during the maternity leave - the consideration of any other applicants, average earnings over three years, and savings or other ability to cover the mortgage during maternity leave.

A Santander spokesperson said: “For self-employed customers who have taken maternity leave, we would look at their last three years’ business figures and offer them a mortgage based on these. 

“Where the customer income has dropped due solely to maternity leave during this period we have the flexibility to use figures from the previous years.”

A spokesperson for Halifax added: “A maternity leave break in itself would not prevent approval providing reasonable assurance of current and likely future earnings can be obtained.”

Accord, Virgin Money, Coventry Building Society and Ipswich Building Society also said they would consider applications on an individual basis.

Clydesdale Bank, TSB, HSBC, Co-op Bank and Nationwide were also approached for comment.

Ruth Whitehead, financial planner at London-based Ruth Whitehead Associates, said the problem did not relate to parental leave per se but to any situation where a person’s income was interrupted.

“If you show low earnings for whatever reason, your mortgageability goes down,” she explained. “Lenders have no conscience and no empathy. They do not care about personal circumstances when there is a period of not working. All they are interested in is earnings power demonstrated through their accounts. 

“It is not fair that lending criteria continue to tighten when banks have been bailed out by us, and yet when looking for a mortgage the eligibility gets tighter and tighter due to lenders’ previous sins.”

simon.allin@ft.com

Have you had problems obtaining a self-employed mortgage for your client due to parental leave? Contact simon.allin@ft.com.