Belfast Telegraph

Saturday 27 December 2014

Couples with children given smaller mortgages

Families with children are being given smaller mortgages than couples without

Lenders are increasingly taking into account whether or not couples have children, and even how much they spend on childcare or school fees each month, when assessing how much they are willing to advance to them.

Many lenders will advance families 10% less than they would to childless couples, while in some cases the difference can be nearly 20%.

But the situation could leave some families unable to trade up the property ladder to a bigger home, or even remortgage on to a new deal when their existing one ends.

The change in lending policy has been brought about by lenders switching from assessing how much they will advance in terms of multiples of people's income, to applying affordability tests to decide how much borrowers can afford to repay each month.

But the stance is being exacerbated by the Financial Services Authority's controversial Mortgage Market Review, under which a far greater emphasis is being put on lenders to ensure that borrowers can afford their repayments, particularly if interest rates rise.

Ray Boulger, senior technical mortgage manager at John Charcol, said: "Since lenders moved to affordability-based calculations, it has had quite a significant impact on the amount that people can borrow.

"There is some logic. If you have three or four children, your living costs are going to be greater than if you have one or two."

Sue Anderson, of the Council of Mortgage Lenders, said: "Different lenders have different affordability methods, but it would not be illogical for lenders to proxy the cost of children into their affordability assessment."

A couple with no children who both earned £25,000 would be able to borrow £207,700 from Nationwide, if they went through a broker, but the amount falls to £174,200 if they had two children, and by 18% to £170,400 if they have three or more children.

Families can get a better deal if they go to Nationwide direct, but even then a childless couple could borrow £225,000, falling to £222,000 for people with two children and £217,000 for people with bigger families.

A Nationwide spokeswoman said: "Families with children will have different expenditure levels to those without. As a prudent and responsible lender, this needs to be reflected in the amount that we will be prepared to lend."

Meanwhile, the cost of fixed rate mortgages could continue to rise following the ongoing increase in swap rates, upon which the deals are partially based.

Five-year swap rates rose to 2.91% today, up from 2.66% at the beginning of the year and 2.33% in December, two-year swap rates have increased to 1.73%, compared with 1.53% at the start of 2001 and 1.35% in December.

The change in swap rates, which has been driven by expectations that interest rates may have to rise sooner than previously expected due to inflationary pressures, has led to a rush among lenders to re-price their fixed rate deals.

More than 20 lenders have either withdrawn or increased their fixed rate mortgages since the start of the year, with some raising rates by up to 0.5%.

But despite the increase, the margins lenders charge on the deals in relation to swap rates are still lower than they were last year, at an average of 2.49% for five-year fixed rate mortgages, compared with one of 3.32% in October.

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