Mortgage lenders penalising couples with children

[anotherfluke]

"Mortgage lenders are penalising home owners with children by reducing the amount they can borrow. The crackdown could potentially prevent them from switching to cheaper deals when interest rates rise.

Many banks and building societies have tightened their affordability criteria in light of the Financial Services Authority's post-credit-crunch review of the mortgage market. But it has emerged that families with children are being hit hard.

Parents will now usually qualify for a smaller mortgage than similar couples without children. Depending on the lender, the reduction might be about 10pc, but could be as high as nearly 20pc. This has triggered fears that parents may not be able to switch to fixed-rate and other competitive deals to protect the family home when interest rates finally begin to rise."

Full story from the Telegraph yesterday

well clearly the actuaries don't agree with you though ISNT.

Point is you could take any rating factor and argue it to the nth degree, but in the end they'll go with what their models tell them, based on a collection of the data available

I wonder if it has something to do with repossesion - if you have children and are paying something towards your mortgage is a judge really going to give you permission to make a family homeless?

I do think it's all about risk reduction.

If people cannot borrow x amount then forced seller will sell their houses for what they can borrow, which will force down house prices, which is excellent new for most families looking to move up the ladder or even get on it in the first place. This is good news folks.

I agree about Current childcare costs not being a good indicator- apart from anything else, if you rely on free childcare to enable you to do a highly paid job, then what happens if that relative providing the free care gets sick/ frail/ (or god forbid wants to do other things in their life than be a free carer)! That would mean the mortgagee having to either give up work, or start paying childcare- either of which Would certainly affect affordability.

And I still think most cases where granny is used for free childcare is where a mother works on a low income, often p/t to make ends meet. Most professionals on higher incomes , working f/t and wanting to borrow on the basis of their income are paying high rates for proper regulated childcare.

mama you are arguing that it is good news that some families who were doing fine might be unable to service their mortgages due to this new rule, and will find themselves repossessed with negative equity? You think this is "good news folks"?

violethill the people around here who have parents who help out work part time, mostly. Not everyone who works part time is low paid, believe it or not.

There was also a point earlier that families with a SAHP already have their loan value calculated on one income. Yes and according to this they will have it reduced by a further 10% - 20% - I haven't seen anything to say that where there are two parents and only one earning this rule will be waived.

I really do think it's all about leveraging more money from families by rendering them unable to move to cheaper mortgages - these people aren't stupid and will have seen all of the consequences.

allnew people who set mortgage lending rules are not called actuaries. Actuaries set insurance rates. Setting lending criteria is a completely different kettle of fish. The pricing of these two products and what is being priced are completely different. A mortgage is underwritten to ascertain risk of default, and to check that the property is up to scratch for resale, wiht a vast amount of information. An insurance policy is underwritten to assess risk of claim, with a more minimal amount of information. If they underwrote car insurance like they do mortgages, they would come to your house and have a mechanic check your car over and then send you out for a drive with an instructor, and then have you followed for a while to see how you drove unobserved. I think it is unsuitable to compare these two products, I really do.

How anyone can argue that it is right to penalise people twice for the same outgoing is beyond me TBH. The more I think about it, the more wrong it seems. Some people really like to see others struggle I guess. There are some posts with a very strong "ha serves them right" flavour which is a bit unpleasant to read, especially when so many people are struggling without this already.

ISNT - it's ok, you don't need to educate me, I know all about banks and insurance companies and who does what thanks .

If you feel that strongly why don't you start lobbying instead of trying to patronise us all

How about this way.

Mortgage lenders want to lend money to people who won't default, on suitable properties, at as high an interest rate as possible. Interest rates are driven by competition in the market and the capacity left on the book ie when they are looking for business they will drop rates a bit and when they are full they put them back up. It's not as scientific as it might seem.

This change will mean that some (many) people are tied into products switching to variable rates, at a time when it is indicated that insurance rates are going to go up. The result is lots of lovely wonga for the mortgage companies.

If they have data that shows that people with children are more likely to default than people without children, when averaged for location, type of property, mortgage type, numbers actually in those situations etc then I'd be interested. It may be that people who have children over-extend themselves more than those without so if there are figures that back up their new rule I'd be interested to see it. But they haven't used it in their justification and I've never heard it so I'm inclined to believe that this is an exercise in generating money.

For insurance rates read base rates, doh!

Isn't - why will they be repossessed if they can service the mortgage ? Nobody comes along and takes your mortgage off you once you have it, providing you pay it

mama I think the point being made is at the moment lots of people are paying their mortgage on discounted rates which run for a fixed period. When your fixed period comes to an end the rate will either revert to the standard varriable rate or the bank will ask you to reapply for another discounted mortgage.

When you reapply the new critera will be put in place to assess whether you are eligible.

EG (and I am not going to use real figures here so forgive me, but I think they are near enough approximations)

You are currently on a fixed rate of .5% over the base rate making repayments of £1000pcm

When your 4 year fixed term ends you will revert to standard varriable rate meaning that you mortgage jumps to £1900pcm. a sum that you have never before experienced and cannot afford.

If you were eligible for another discounted rate you could pay £1200 but the new lending critera means you will not be eligible. So your mortgage now becomes totally unaffordable.

That was always going to happen though, lets face it people are going to be up shit creek when they aren't getting discounted mortgages but did they really think the discounts would last forever ?
We are on a fixed and will be in 7th heaven when we move to variable assuming the rates are as they are now, I suspect we've paid £15k too much in interest at least but I'd still rather do that than gamble with the family home, people should have been more sensible basically.

Violethill - I think some of the grandparents I know that look after their grandkids a few days a week might take issue with the idea that paid childcare is in some way superior.

It's not my situation but I know several very young at heart, fit, intelligent women who have RETIRED to do exactly that. Yes the parents do appreciate them very much - one mother is an accountant, the other an nhs management, both husbands also have professional jobs.

The grandma's didn't do it because they had to, but because they wanted to.

Everyone should have expected that their mortgage payments would go up in line with inflation BUT to have the double hit of this plus the fact that you can no longer have the mortgage on the same terms that you did and will therefore have to pay an additional high rate is, as ISNT says disingenuous.

We applied for a new mortgage (agreement in principle) a few weeks ago and had the amount we were eligible for reduced due to childcare costs.

They were not interested in the actual costs, just applied some kind of reduction.

Then refused to take my salary into account at all because I'm on a temp contract (till 2014).

Were not interested in the idea that if (as far as they were concerned) I was not working, then why were they still applying a childcare cost reduction...

So from assuming we could borrow about 2.5 to 3 x joint income we were down to about 2 x one income. A big, big hit.

Things do appear to be pretty tough.

Well it sounds from this that we wont be moving for a very very long time.

FWIW I was given a mortgage 6x my gross salary in 2006, because they included my hefty tax credits but ignored that this was all spent on childcare. I'm not complaining though. If I hadn't bought I'd be paying £250 pcm more in rent (and probably would be getting HB to boot).