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Can you borrow while on maternity leave?

Discussion in 'Property Finance' started by Jamie Moore, 12th Sep, 2016.

  1. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    If you’re reading this and about to go on maternity leave (or are already on it) – congrats! It’s an exciting time.

    We get quite a lot of new enquiries from clients who have just been declined from their current lender due to being on maternity leave.

    It’s a frustrating situation – some have been saving up a deposit for a long time and are excited about finally purchasing a home. Others have decided it’s time to upgrade into something larger to accommodate the growing family – or simply want to release some equity to pay for renovations.

    From the lenders perspective, some will argue that there’s no guarantee the client will return to the workforce and therefore the application is considered high risk.

    The good news is that some lenders are more receptive to lending to clients on maternity leave. They won’t simply base their assessment on your current financial situation (which usually involves a period of reduced household income) but will also look at your borrowing capacity based on your return to work income.

    Providing you have enough savings (or other liquid assets such as shares) to cover any shortfall in income during the period of maternity leave - some banks will take into account your return to work income when assessing your borrowing capacity.

    How long can you be on maternity leave for? From the banks perspective - it’s generally a maximum period of 12 months but the shorter the period the more favourably the application will be looked at.

    What do you need to show the bank? It’s the same requirements as any other application – you need to provide payslips as well as a letter from your employer stating the terms of your maternity leave, your return to work date, tenure when you return (part time or full time) and the salary you will earn. You will also need to show proof of savings/assets.

    What’s the maximum Loan to Value Ratio (LVR) you can borrow up to? As a general rule – it’s best to aim to borrow no more than 80% of the property’s value. Technically it’s possible to go beyond 80% (up to 90%) - but when mortgage insurance is involved, it adds a further layer of scrutiny to the application.

    Does the purchase have to be for an owner occupied property or can it be for an investment? It can be for either. We’ve had loans approved for both.

    With all that said – it’s hugely important that the borrower is comfortable with taking on additional debt. Whilst the thought of a new home, investment property or upgrading is exciting – overstretching yourself and ending up in financial hardship isn’t! So whilst the bank might be willing to provide you with a loan it’s important that you’ve also crunched the household budget and are reasonably certain that you can afford to take on the additional debt.

    When crunching the numbers, it’s important to base your loan repayments on a higher rate (around the 7% mark) so you can be confident that you’ll be able to meet your repayments when rates eventually start heading back up. Also factor in expenses relating to your new bub – they can be very expensive!

    All in all, being on maternity leave doesn’t preclude you from borrowing. It’s just a matter of working with a lender that’s policies are conducive to your requirements and presenting the strongest application you can.

    I hope this helps.

    Jamie
     
  2. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    Do at least 1 of these a month.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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  4. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Who is looking at this favorably? I know NAB are in this space now but who else?
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Westpac, CBA, I assume St G too if WBC is.
     
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  6. Brady

    Brady Well-Known Member

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    Great post @Jamie Moore

    No issues with CBA - all the way up to 95% inc LMI

    Only time I've had one knocked back was when it was a CAT 4 - so pretty much weren't keen to do anything out of the box, they wanted her to return to work.
    Funnily enough when she returned to work - scored a CAT 3 - system approved no need for credit approval.
     
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  7. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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  8. newbie1234

    newbie1234 Active Member

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    We were in this position back in 2012 when I was on paid maternity leave from my Employer and we wanted to upgrade our PPOR.

    The very pregnant lending manger at BankWest said "there's no guarantee you'll return to work". I said why would I ask for a bigger mortgage if I didn't intend on supplying income to pay you back? In fact you would think I had more incentive for going back to work. What's the difference if someone gets a loan and quits their job the next day? Oh that's right, I'm female - we mothers are irresponsible and unreliable.

    Needless to say we got our loan with ANZ after I went back to work for a day a week.

    Sorry for the rant but after that confrontation I never stepped foot in BankWest again.

    Thanks for the info Jamie very informative.
     
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  9. tobe

    tobe Well-Known Member

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    Anz started it and don't have lvr restrictions. Westpac only go to 90% me bank is another.
     
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  10. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Thanks Brady

    CBA is probably my number one go to lenders for these scenarios :)

    Cheers

    Jamie
     
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  11. neK

    neK Well-Known Member

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    Is there a general level of investment debt before its a straight out no?
    And do they like equity extracts?
     
  12. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Not that I've encountered (re investment debt).

    Last one I carried out involved a large equity release for future investment purposes.

    Cheers

    Jamie
     
  13. Tony80

    Tony80 New Member

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    Thanks for the info Jamie.
    Just about to start looking to upgrade our PPOR and my wife is on maternity leave.
    I spoke to my current bank and they were of no help at all.
    Want to be able to buy our next PPOR before selling our current one.
    I have paid down our current PPOR worth $340k to $0 (money sitting in offset) and have $170k of savings to contribute to a $630k home.
    The only option they could present was bridging finance despite a current income of about $100k and no other debts. If I can count my wife's income in I suspect serviceability would get us over the line. That said I think when I do some serious research and speak to a broker etc I should be able to purchase the new PPOR without bridging finance.
    P.S - Current PPOR isn't ideal as an investment so happy to move on from it and look to an IP in the near future.
     
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  14. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Did they include rental income from your current PPOR when doing servicing? If the current house didn't sell, this would be the case so I always include this to help with servicing in these situations - I just make sure there's enough cash to cover loan payments in the event it's empty and takes 6 months to sell.
     
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  15. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Jess is on the ball - I'd be wondering if they included proposed rental income on your existing PPOR to show that *if* you had to, you can show sufficient capacity to hold both properties.

    Different lenders are better in this space than others - definitely sit down with a broker who can work out a strategy to get you into a new PPOR before selling the current.
     
  16. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    My pleasure - hit up a decent finance person and you might get a different outcome.

    Cheers

    Jamie
     
  17. Miss_D

    Miss_D Member

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    For the single mums or single mums to be, i was able to do this by myself. I bought a 270k ppor, 20% deposit, plus i also had 2 other properties. A letter from my employer to state i was returning to full time employment after 6 months of maternity leave, and on top of this i also submitted a spreadsheet of all my costings and incoming money while on maternity leave, to not only show that i could pay the loan but was also able to save money too. The loan was through CBA, and this is what got me over the line. the only thing is allow extra time for bank approval, so make sure you write that into your inital contract for bank approvals. The previous owner i was buying from wanted a longer settlement so it worked out well, however it did take around 6 weeks to get approval from cba at the time and an extension in my contract ( i asked for four weeks originally to get the loan approved) This was three years ago.
     
  18. miximitosis

    miximitosis Well-Known Member

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    Is 95% with CBA the highest LVR you guys have seen? Anyone do 97%?
     
  19. Beelzebub

    Beelzebub Well-Known Member

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    If you're on maternity leave and go back to work are there any issues borrowing funds from day 1 back at work? For example, when the bank asks for financials? Or if settlement would take place at the time the mother goes back to work?

    Partner is going on Maternity leave in Feb and will return to work two days a week in November (currently works three days a week). I was planning on starting the research and acquisition process for next IP after financial year 2017.
     
  20. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    No. Providing you have met the lenders criteria and there are slight policy variances between lenders in regards income and savings available during maternity leave.

    Maternity leave policy only applies to PAYG from my current understanding so when you say financials are you referring to payslips, savings etc or self employed financials, tax returns, profit & loss and balance sheet?

    If you can provide evidence of income details via a letter from employer whilst on maternity as well as conditions upon return to work leave should be doable. If there are income gaps then in some cases you can use savings to mitigate this.

    Be aware that a lender can have a certain policy set now that may change at time of application so a plan A & B and maybe C needs to be in place?

    Seek advice and guidance from a broker before proceeding so you can future plan your next moves.