For far too long, the mortgage market has taken a blunt, one-size-fits-all approach to maternity leave, treating it as something to be cautious about.
Often perceived as a red flag to underwriters, a risk to affordability, and a reason for many lenders to say no, many borrowers on maternity leave can find themselves unfairly penalised at this financially and emotionally vulnerable time.
Income is often perceived as having reduced, return to work plans are questioned, and in some cases, lenders request post-maternity pay slips before a borrower has even returned to work, an approach that is not just intrusive, but also impractical.
This can often result in families being penalised at a crucial stage in their life, just when they’re trying to get settled and lay down the foundations for a stable and more financially secure future.
The bigger picture
Yet many of these borrowers are likely to have a strong financial history, a partner that is still working full-time, or a clear and detailed plan to return to work. However, they still find themselves treated as high risk because they have taken time off to care for a newborn baby.
This is a frustrating and antiquated approach to assessing affordability; one that brokers and their clients have to contend with on a regular basis. Maternity leave shouldn’t be considered a financial failing, it is a normal, often temporary life event that millions of families plan for and manage with care.
It’s not a red flag, or a sign that someone won’t return to work, therefore, why should it be treated like one? It’s time for mortgage lenders to take a different view.
A different approach
Although risk management is embedded into the ethos of the mortgage industry, there’s a fine line between caution and rigidity. Only being comfortable with applicants on full pay all year round doesn’t really reflect the lives of modern-day borrowers.
If mortgage lenders are to truly serve their needs, we need to shift away from risk aversion and take a more meaningful and real-life understanding of our clients’ differing situations. This includes working with brokers to get a better understanding of their clients and trusting them with the information they provide.
It is also about digging a little deeper into the unique and varied circumstances of each and every applicant and making decisions with a little more empathy. Taking a flexible case-by-case approach to affordability for all applicants, including those on maternity leave, can truly help lenders support clients at a crucial stage in their lives. It also enables them to get an insight into the borrower’s needs both now and in the future.
Asking personalised and tailored questions regarding the borrower’s plans to return to work, the household income while they on maternity leave and whether there are any savings to bridge the gap, for example, can help lenders identify ways to help these borrowers with their lending requirements.
By asking questions and looking for answers, instead of red flags, lenders can get a true understanding into the borrower’s personal circumstances and a full and accurate picture of their financial situation. It will also enable them to better support these borrowers through major life events such as having children, rather than shutting them out because of it.
Lending with empathy
As lenders, we have a responsibility to support our borrowers, not exclude them, which means adapting criteria that reflects real life situations, saying yes when it matters most and lending with empathy.
So, let’s stop treating maternity leave as a risk and start recognising it for what it is – a temporary life event, not a financial failing. Our brokers and borrowers deserve better and it’s time the mortgage market stepped up to the challenge.
