Mortgage and childcare

[NameChangeAsICouldBeOverReacting]

We’re currently in the process of selling our place and hopefully moving into a bigger sized property, but we’ve ran into an issue with our mortgage.

At present, we do not pay for childcare as I’m on maternity leave and then they will be looked after by my mum and me taking AL, but we’ve not yet decided (or even signed up to a nursery) if they will go part time once my AL runs out.

The bank is asking for any future outgoings and childcare is one of them. As we’ve said we don’t know if this will change yet they’ve asked for an estimated amount if we did pay for childcare (estimated £700 per month based on daily rates).

This is reducing the amount they would lend us by £100k, meaning we won’t be able to buy the house! Our LTV is 50%, if they offered us the full amount we owe, so we’re in a good financial position on the house.

How is this even fair? We’ve not even decided if we will go through with a nursery place, so how can we be penalised by this when it may not even happen!

They ask you for a reason. They need to know you will be able to afford it. They are saying how much they are comfortable you can afford. You don't seem to know yourself yet if you're going to be £700 down a month or not. It's a massive difference and they are right to be cautious.

How is this even fair? We’ve not even decided if we will go through with a nursery place, so how can we be penalised by this when it may not even happen! is this a genuine question? If so it is fair because you have said you may have £700 of extra outgoings. I don't see why it is unfair.

But you said:

We have money in savings for this

So this doesn't sound like you can afford it all and still add to savings, this sounds like you need to use savings for your monthly living does it not?

@Lottieoxo sorry, that was in response to having a good buffer. We put £1000 a month into savings for worse case scenarios, but not to pay our monthly bills from.

This! Obviously, I'd have thought.

It's totally fair. Free childcare often doesn't work out well, and you may find after the first 3 months that resentment and tension have built to the point that you need a nursery place. It would be irresponsible to borrow so much that such a scenario would lead to you not being able to afford your mortgage.

Set your sights lower, on a house you can afford when combined with childcare costs. If you end up not needing childcare you can put the extra money into overpaying the mortgage and will be in a much stronger position to upgrade to the forever home in 5 years time.

From an Underwriters point of view. They have asked what your estimated childcare costs are. You've replied £700pm
But you now want them to ignore this information?
It is probably very unlikely to happen but if in the future something happened where you couldn't pay the mortgage the bank wouldn't have a leg to stand on if on your case notes you've told them that they should be taking a further £700 a month into account and they haven't
Banks work out affordability in different ways. You say you can afford it etc but you have to be able to under the banks criteria

They have far more experience of what people can afford. Their algorithms and rules etc are far more sofisticated than your budget - they'll have stress tests etc. They don't want to be repossession houses. They are tightly regulated. If you've said you might have £700 of childcare a month of course they will take that into account.

It's not "penalising" you to not lend you money that you say you might or might not be able to afford to repay. I wouldn't lend you money on that basis, either, does that mean I also hate "working families"?

You mention the bank and a broker, I'm surprised that the broker let it get as far as an application without having this conversation with you and explaining what it would mean, that's one of the reasons to use a broker is for them to help.

And if you say you won't need nursery because you'll be going part-time - be aware they will want to know your part-time salary i.e. actual future income. So you need to either find a lender with a more cavalier attitude to affordability, or lie...

Just to warn you, our DD had the same problem with the mortgage and childcare. Even though she said that we would be doing the childcare until school age, they still downgraded the amount they would lend her. It wasn’t through a mortgage broker though, but her current lender.

@LordEmsworth I’m not going part time, I’m using annual leave to take time off as I’ve got so much built up. So I’m still on my full time salary.

We don’t think we will need nursery as between my mum and the in law’s, they can cover all days, but we were considering a day or two of nursery for socialisation.

I think it’s frustrating as we’ve not committed to anything.

You probably should have sorted it all out before making the application tbh

Then you state you have X in savings to cover X months of childcare - you have savings for a known expense rather than an unknown expense.

@NameChangeAsICouldBeOverReacting ah sorry, I misread that as you might go part time once your AL runs out. I understand that you're still full-time now.

So once your AL runs out, you won't need nursery, nursery will be an option if you have money left after paying the mortgage but the actual childcare element will be covered by grandparents? That's not what your OP implied and I am guessing, not what the mortgage adviser/underwriter understood.

That's what you need to explain to them - the childcare will be done by grandparents, the nursery for socialisation is discretionary spending that you will be able to stop/not spend if you choose. The "we haven't decided yet" is confusing & doesn't convey the fact that it's an optional extra, rather than something you will have to pay out in order to continue having both parents working.

It’s not unusual for a lender to bring down your affordability based on an extra £700 a month bill. But the majority of people do not disclose childcare costs to their lenders. I’ve used brokers for six mortgages and they have never given the lender any childcare costs (and we pay £1000-1600 every month). A woman at work very recently had the same thing as you happen - she told the lender her parents were going to pay for the nursery bill (untrue), and the lender accepted it.

See if your lender will let you ringfence part of your savings for nursery costs so it is no longer coming out of your income. £16k would take you until your child gets free hours at 3. My broker suggested this as a way of discounting childcare costs from the calculation.

So I used to work in mortgages
Firstly
Tell them no childcare costs and grandparents will be helping

Secondly the system is so effed up as it is in the background that's it literally calculates even harsher than it needs to as a worst case scenario.

If you say no childcare to get the mortgage then end up paying 700 on childcare, you can still afford it, the systems are whack

Mortgages are such a risk adverse

@LordEmsworth yes, that’s completely right. We’re in the middle of the 8 month regression so my brain is a bit melted.

Grandparents are covering childcare as of now, but we may consider nursery but it’s optional/if we want to, not a necessity.