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penalised on mortgage for childcare costs

(32 Posts)
Pagetta Wed 13-Jan-16 13:38:46

This is more a rant than anything, but I'd be ineterested to hear from anyone else on this....

So we are buying a new build house and just had meeting with mortgage broker.

We have Plenty in savings to cover fees, deposit and lots more, absolutely no debt, and based on our earnings we should be able to borrow MUCH more than we require for this house according to some mortgage in principle agreements we did 3 months ago.

We both work full time, and have saved hard whilst renting to afford a nice family home.

So despite all this, our £750 a month childcare costs reduce what a lender would give us by about 20k - and push us up to higher rates!

How is this remotely fair?? We work full time to afford a nice house and then are penalised for it!

He will be in school in two years so it will stop or drastically reduce soon - why oh why is a 3-5 year cost such a huge impact? Especially when that cost will stop and wages will very likely rise?!

AGH why don't we just both quit work and apply for a council house :-(

*sorry sorry rant rant*

LaFlottes Wed 13-Jan-16 13:44:13

I think the problem is all the affordability calculations and as this is a big outgoing, it affects how much you can borrow, just in the same way any other financial outgoing would.

I totally agree that it's annoying and unfair though. It's not like you're paying off a huge loan, it's just a necessary but temporary expense.

I hope you manage work work it out and perhaps you could take a 2 year deal so that you can get a better rate as soon as the child care costs are gone.

lalalonglegs Wed 13-Jan-16 13:48:19

It's a reaction to the last crash when banks were told to tighten their lending criteria and new parameters for affordability came in (I know people who have had their bank statements combed through and the mortgage adviser criticise them for having expensive gym membership or eating out too often). I agree it can be ridiculous but £750 per month is a sizeable amount that you can't use for a mortgage and presumably, even when your child starts school, you will be paying for some after-school and/or holiday care and may even have another child by then. I don't think that they are being unreasonable to take these sort of fairly fixed expenses into account but I can understand your frustration. Well done for saving a good deposit - when does the new-build complete? If it is a few months away, you may find that if you continue save you will dip back into the preferable rate so it might be worth delaying the application if at all possible. Alternatively, second-hand houses often offer much better value meaning you need a smaller mortgage from the outset.

I'll ignore your comment about council houses because that's just silly smile.

okitoki Wed 13-Jan-16 13:56:43

We were given a mortgage in principal for a new property. Found the property we wanted, applied for the mortgage and then were turned down for the exact same reason you are and the irony of it was we were looking to loan less than we owed them on our current property. DH shouted, I cried and we stormed out of the building society.

enderwoman Wed 13-Jan-16 13:58:18

If you opt for private school that 750 becomes an even bigger commitment until the child is 18.

I'm sorry but your last sentence is stupid and doesnt make sense.

Whatdoidohelp Wed 13-Jan-16 14:00:50

It's ridiculous, but required. The banks have to be super cautious. However it shouldn't affect your interest rate, just the amount you can borrow.

Also why are you using a broker?Go straight to the bank or building society

Bearbehind Wed 13-Jan-16 14:04:43

Your post doesn't make sense to me.

Are the school fees saved up for or are they outgoings?

It makes a big difference.

If they are a monthly outgoing then they have to be factored into what you can afford each month after they've been paid- what may or may not change in the future cant be accounted for as it is not certain.

If they are saved already but are still being included as a monthly cost then why don't you use the savings to increase your deposit and secure a better rate?

Bearbehind Wed 13-Jan-16 14:08:44

However it shouldn't affect your interest rate, just the amount you can borrow.

hmm

It will affect the rate if it changes the loan to value bracket the mortgage falls into.

Pagetta Wed 13-Jan-16 14:10:52

I do get its an affordability thing and a sizable chunk out of our wages each month - so i understand its taken into account. But it will only go DOWN over the 30 years!

I guess its more frustration than anything - worked hard to get in this position to buy somewhere, then get hit with that :-/

Laflottes your description is bang on - a necessary but temporary expense. After school costs will be incurred, but they will be a lot less!

Not sure of 2 year or 5 year term yet but there will be more children so it won't change in the short term. We are speaking to a broker and we will GET a mortgage - just not on great rates. Okitoki have you tried a broker? The one recommended through our developer has been really helpful.

A 'second hand house' was our first choice, but we'd have a to pay a bigger deposit, which would wipe us out and we'd like a bit left in savings for maternity leave i'll hopefully take in future!

TheClacksAreDown Wed 13-Jan-16 14:11:50

You can blame the Financial Conduct Authority and their affordability tests I'm afraid. Very frustrating from your perspective.

AndNowItsSeven Wed 13-Jan-16 14:14:12

In my area you would struggle to be eligible for a council house if you were unemployed. Hth.

LuciaInFurs Wed 13-Jan-16 14:33:48

It's the new affordability checks. They can't base the mortgage offer on what may happen only on what is happening now. So (not saying that this won't happen) they can't rely on your wages increasing in the future.

The new checks are a bit mad. One of the banks we went to had the cheek to ask me if we had any plans to have children as we were buying a four bed house. A friend of mine was penalised for having a gym membership and her partner was asked how frequently he went to the pub. They are being extra cautious due to the new FCA guidelines and after the mess of the crash you can't blame them. Hope you're still able to get your home.

TreadSoftlyOnMyDreams Wed 13-Jan-16 16:36:51

I don't want to burst your bubble but with wrap around care costs and school holidays 12-14 weeks per annum your childcare costs sadly don't diminish too much.

I don't understand why your interest rates would be higher if you are borrowing less ? It is usually on a LTV [Loan to Value] ratio so the less % price of the house you are borrowing, the more interest rate options are available to you?

I would recommend looking at an offset loan in your circs. You can overpay your mortgage and reduce the cost of your interest payments long term if you have the cash, but also draw it back out if it's needed without penalty. Doesn't help if they won't lend you £20k extra that you were expecting though. The banks will assume you will have another child, take 12 mnths mat leave and have childcare costs etc for 2 children for the next 10 yrs.

Pagetta Wed 13-Jan-16 16:59:47

thank you i'll ask the broker about the offset see what he says. If we can over pay while we can that would help!

Basically the two lenders with the best help to buy rates won't lend us enough, so its higher rates from other lenders.

I know this is all for good reason and there is good reason for them being stringent - just so very frustrating :-/

OllyBJolly Wed 13-Jan-16 17:08:51

AGH why don't we just both quit work and apply for a council house :-(

Absolutely nothing stopping you. You might not get on a priority list so might have a bit of a wait and no choice at all about where that house is but you can certainly do that.

Not sure what you'll live on until the benefit sanctions elapse...

expatinscotland Wed 13-Jan-16 17:11:26

'AGH why don't we just both quit work and apply for a council house :-('

Why don't you then? They're so easy to get, everyone knows hmm.

Pagetta Wed 13-Jan-16 17:19:04

sorry - i know bit of unreasonable thing to say - did say i was just ranting!

The work Vs childcare balance is a tough one and everyone has different factors to consider this just wasn't one i'd factored in!

sparechange Wed 13-Jan-16 17:25:57

Actually, I think you have been treated pretty fairly if your £750/ month outgoing only knocks £20k off how much you can borrow.
If that was a £750/month outgoing for anything else - servicing debt, child maintenance, mortgage on a holiday house - you'd lose a lot more than £20k
DH and I had around £5k in combined credit card debts, which we were paying back at around £400 a month around the time of our last mortgage review, and they wanted to knock more than £20k off the amount they would lend us...
Given you say you are planning another baby soon and will be on maternity leave/pay, it is possibly isn't totally unfair that they are being strict on your affordability...

mamapants Wed 13-Jan-16 17:29:25

They take account of all outgoings,so would be weird if they didn't take account of childcare.confused

SexNamesRFab Wed 13-Jan-16 17:32:19

I haven't read the whole post but... This happened to us so I called the bank back and told them my mum had agreed to provide all our childcare for free she had not.

laughingGnomette Wed 13-Jan-16 19:19:19

I'm no expert on mortgages but I think it depends on the lender.

We were in a similar situation back in April. We needed to remortgage and our current lender (Nationwide) would have refused our application because of childcare costs. We paid for an excellent broker so he was able to run the figures for us and knew the calculations the lenders used.

Nationwide took the cost of childcare out of our earnings to calculate what we could borrow which meant we fell short. The lender we went with (RBS) take the childcare costs as part of our outgoings which enabled us to be qualify for the mortgage we wanted as our earnings were not affected.

We went for a five year fix (by which time DS will have started school) so we were not being reckless on affordability. As it turns out our childcare costs have dropped by 2 thirds anyway as we found a place at a state nursery so it was a very good outcome smile

Good luck!

Pagetta Wed 13-Jan-16 19:50:49

Thanks! That makes sense - the in-principle agreement just asked for outgoings as a whole and was fine, but broker took breakdown of them and said for some lenders it will really impact that so much is childcare!
Will keep it in mind if any issues when he comes back to us :-)

noisytoys Wed 13-Jan-16 20:18:23

Use a broker. I am applying for a mortgage through London and Country and according to my application I have no outgoings whatsoever other than current mortgage costs. I don't know how they get away with it but I am borrowing a low salary multiple and it is very affordable so I'm not questioning it.

Bearbehind Wed 13-Jan-16 20:30:36

noisytoys have you received a mortgage offer yet as claiming you have no outgoings if you actually do is a very dangerous plan.

The lender may well ask for bank statements and will see you are not being honest. If your mortgage is so affordable, why risk it by lying?

Lenders also have a system they use to share information about fraudulent applications so this and sexnames strategy are not ones I'd try- mortgage fraud is never a good idea.

noisytoys Wed 13-Jan-16 20:33:36

I have a firm mortgage offer and have supplied 6 months bank statements, wage slips, tax credit award letter etc which have been assessed but the application submitted doesn't have any outgoings.

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