Penalised on mortgage offer for having childcare costs

[Sunworshipper]

Just had the most ridiculous conversation with Yorkshire Building Society when I rang them to find out rates as we are remortgaging. Lady on the phone went through usual salary questions and asked if we had any loans etc and based on my answers said we would be eligible for £285,000 which was just over the amount we needed - so far so good. Then she said, 'oh I should have asked, do you have any childcare costs?' (She didn't ask do you pay electricity bills, do you pay school fees, how much do you have to pay for travel etc etc). I innocently replied that we both had maximum childcare vouchers through our employers and paid £120 per month on top of this each. 'Oh,' she said, 'that will affect things.' Yes, BY £34,000. They would lend us £34,000 less because we had childcare outgoings. I was flabbergasted! No matter what I said to prove that we could comfortably afford repayments, she just said that the YBS were very cautious around childcare costs. I can't believe that families are being penalised in this way. What should I have done? Lied? I just never thought it would be an issue. Has anyone else experienced this?

So this conversation was just an enquiry? When you go through the whole application, you will have to list your income and your outgoings, as they want to know what your disposable income is, not just your salary.

You are not being penalised. You simply have a call on your income which will reduce the money available to pay for a mortgage.

All I know is that YBS would only offer us 1.5 x dh's salary (he's a hospital consultant in a permanent post) and at a staggering interest rate despite us having no debt, no childcare costs and a 25% deposit. Not sure they really want to lend ...

Did you deduct the monthly salary sacrifice from your gross salary? If not then you have what roughly £600 between you less each month plus the regular outgoing so you are not being penalised for having children but being made in offer in line with what YB thing you can afford based on you disposable income.

If you look at the lender's own websites who have a "how much can I borrow?" type of calculator, this is really common.

Our childcare costs are taken from my salary at source, on a tax-efficient scheme. It genuinely reduces my salary by about £6000 per year, so I don't feel it's unreasonable for a lender to see it that way, really. It's not like it's a discretionary outgoing each month - if I work, I have childcare costs.

What do you mean by penalised?

I remortgaged recently with my existing mortgage provider and they didn't ask me a single question, other than did I want to borrow more? They did some ridiculous paper valuation for my house that if anyone would actually give me in RL I'd sell tomorrow. They didn't even ask how much I earned. The only thing they were interested in was the loan to value (which was low because of the silly valuation).

It's reasonable for any lender to want to make sure that borrowers can meet their payments and won't be overstretched or defaulting. Child-care fees are often a massive expenditure item. They'll want to know about all your regular outgoings in due course so I don't think anyone's being penalised.

Did you quote your salaries before or after the voucher sacrifice was taken?

If it was the former, then they have (correctly) activated the sacrifice as part of the calculations, and this can be one of the effects of opting to reduce you salary. If you gave the post-reduction level, and she's taken it off again, then it might be worth enquiring again.

Childcare expenses can be as much of a monthly outgoing so it is very common to ask, and prudent IMO

You are not being penalised; they are simply trying to establish your disposable income after long term financial commitments have been accounted for. They would ask this of anyone. We remortgaged last year and were asked about childcare, student loan, car loan, credit card debt and overdraft amongst other things.

Very sensible too.

You wouldn't lend £10 to someone you knew only ever had £5 to spare would you?

I agree with the poster that said that banks just don't want to lend anymore. IMO they are just looking for excuses. It's just not the business many banks are after at the moment.

Ok, I am rubbish at maths - took me five attempts to pass my maths GCSE - but in my humble reckoning and please forgive my ignorance and maybe it just doesn't work like this but their reasoning doesn't make any sense to me... I gave her gross salary figures and as gomez pointed out, didn't deduct the salary sacrifice. In total per month this is approx £600. I was interested in their advertised two year fixed rate offer of 3.49%. We have 25% equity in our house. £600 over two years is £14,400. In one year's time dd will be eligible for the government funding and we plan to manage without additional childcare by then so, in effect, we've got £7,200 more childcare to pay. I tried to explain this but it wasn't taken into account - she just calculated a reduction of over £30,000 in the amount they would offer.

I then tried to explain that we had been able to manage our mortgage for the past five years on a rate of 5.something even over the past year when we've had the childcare costs and I have taken a salary cut so we could definitely afford repayments on a reduced fixed interest rate. She just wasn't interested in having the discussion or even looking at our income and outgoings in any more detail. The childcare costs were the main factor.

I had rung the YBS for a comparison as we already have a written offer at a decent rate from the Woolwich and I just wanted to see what else was on offer before signing on the dotted line as things seem to be changing weekly on the mortgage front at the moment.

So, in my mind (and in our bank statements) we can afford it. All I can conclude alongside SootySweepandSue and hannahsaunt is that the banks just don't want to lend and will look for any excuse - in this case - childcare costs.

The banks can't win, can they?!

Either they are profligate, lending money to people at silly multiples, or they are mean, tightfisted bastards, who won't lend to anyone!

Not 'banks'... just YBS, surely? You've already got an offer from Woolwich so at least one bank is prepared to lend you the money. I can't see why you're getting so exercised when you've got the loan agreed in principle.

Because I wanted a fair comparison and it felt unfair and disempowering in a 'computer says no' sort of way.

Far be it from me to defend a bank, but ^ what BIWI said.

You're not being penalised, they just don't want to lend to someone with such high outgoings!

They wouldn't have asked about electricity bills and so on, because everyone pays those. They can probably work out reasonable averages for those without asking.

I don't know about school fees; maybe they assume you don't pay any, or maybe they take the stance that if the shit hits the fan people can withdraw their children from private school before having their home repossessed.

Every bank is entitled to lend or not lend according to its own internal rules. Woolwich says yes, YSB says no. It's hardly 'all banks' is it? If you asked 20 other institutions you might get a mix of yes and no from any of them. So what? I really don't see why you're getting upset about one solitary organisation. You're overreacting.

It isn't just childcare costs that they use in affordability as most banks will use a general household figure for utilities i.e a set figure which may or may not represent the actual amount you spend each month. They don't want to have a debate with each client on actual costs so they just use set figures.

All banks now have very strict criteria for lending and they have profiles of who they want to lend to. If your Loan to value is 25% they may ask for higher levels of disposal income which is why others (LTV of 50+%) may not get asked such detailed questions.

I think tighter lending is a good thing but it will take some time for everyone to get used to the new controls in place.

sunworshipper: as the problem seemed to arise because you quoted a higher salary for both of you than you actually have (the sacrifice), then perhaps that is what you need to let go of in order to get the mortgage offers you like?

However, it seems there are some (banks and posters here) who think you will be over-extending yourself. You might like to think about that.

By the old rules, ie from when I got my first mortgage, then we'd have been expected to have a deposit of about 10%, then lending was 3.5 x main, plus 1 x lower income (and that was considered a high multiple). If you/OH earn about the same, then you would need £25k+ of savings and an income of about £63,000 each a year to have been offered £285k. Does that help put it in proportion?