New Parents Face Mortgage Misery; Families' Home-Buying Dreams Shattered as Banks Get Tough

Article excerpt

Byline: Sam Dunn

FAMILIES are having their dreams of moving home shattered by banks who are penalising new mums.

Money Mail can reveal how banks and building societies are imposing tough rules that limit how much families with recently born children can borrow.

Banks fear mothers on maternity leave won't return to work and so are refusing to take into account their income -- even if the woman is the main earner.

With banks asking for bigger deposits for the best deals this is scuppering the chances of many families of moving home or even to move to a cheaper rate.

The situation has become so bad that trade body the British Bankers' Association (BBA) is meeting major mortgage banks and Government officials to discuss allegations of discrimination against pregnant women and those on maternity leave.

One major national mortgage broker, John Charcol, has recently had a dispute with a High Street lender over a mortgage application from a borrower on maternity leave.

The couple, with the mother off work, could easily have afforded the loan and met the bank's own rules, but were suddenly turned down flat.

Ray Boulger, the broker's senior technical manager, says: 'Being on maternity leave can be a real issue. In this case, the borrower had just started on maternity leave, on full pay for three months before dropping to half pay -- which is quite good -- and was planning to go back to work.

'Yet the mortgage lender turned down the application. It only went through on appeal after we had it overturned on the grounds of discrimination laws and stressing the affordability.'

Rather than being an isolated incident, the case reflects growing unease that lenders, worried about bad debts and a loan's affordability to borrowers as the economic squeeze continues, are failing to treat applicants equally.

In recent months banks and building societies have taken an increasingly hard line on mortgage applications in advance of new rules from the City watchdog the Financial Services Authority (FSA). They are desperate to show they are lending responsibly, but it has led to accusations that many good borrowers are being rejected.

Some banks have placed tough restrictions on interest-only loans -- Nationwide BS and Santander now insist on 50pc equity -- as well as asking for larger deposits from first-time buyers and effectively barring the recently self-employed from borrowing.

Families with children are already being hit hard as lenders now factor in the extra expense of having children on how much you can borrow.

For example, a couple without children looking to buy a house whose joint earnings are [pounds sterling]50,000, could secure as much as [pounds sterling]250,000 from Nationwide BS. However, says research from broker London & Country, this would drop to [pounds sterling]225,700 -- a fall of nearly 10 pc -- if they had two children.

And it would be further reduced if school fees or further child-minding costs were included.

The FSA says it is monitoring the behaviour of banks. In its recent proposed rule changes, it notes pregnancy and maternity as 'a potential area for concern', although it adds: 'Firms should not have underwriting processes in place which discriminate against pregnant women or those on maternity leave. …