The new mum and her partner had spent two years saving up a 20% deposit, but the bank refused to give her a loan; this was also despite her receiving 18 weeks of government parental pay and a letter from her employer stating her intention to return to work.
New mums seeking a home loan may be forced to make a tough choice: stay home with their baby and forget the loan, or return to work before the market prices them out.
Will maternity leave affect your mortgage application?
An ANZ spokesperson told CHOICE: "Lending policies are based on the customers' known or expected circumstances at the time the loan is taken out." If the loan can be afforded on your partner's income alone, then it should be granted. However, it gets tricky when your income is taken into account.
"If you have repayments of $500 a week and can't afford it because one of you is on maternity leave, then the loan can't be granted," says Katherine Lane, a solicitor from Financial Rights Legal Centre.
However, there are other options. Based on the certainty that a woman is returning to work, some banks will allow you to pay interest only while on maternity leave. But lenders aren't always flexible, and they're under no obligation to restructure loans to suit your circumstances.
Is it legal? And is it fair?
The National Consumer Credit Protection Act states that mortgage lenders are required to assess whether the consumer can make repayments without significant hardship – so it's possible that your application could be rejected. Lane says that by law, banks are under no requirement to grant loans: "At all times you must be able to demonstrate if you can afford to pay without substantial hardship."
When asked if there is any flexibility to restructure loan repayments for women on maternity leave, a spokesperson for ANZ responded: "We understand people's circumstances change in life, whether it's having a baby or changing careers. For those customers requiring flexibility we encourage them to come and speak to us."
Lane's advice is to wait until you go back to work to apply for a home loan; this also gives you flexibility with your baby. "We want people to have choices and manage risk. Don't over-commit yourself when you want to stay home with bub."
What about maternity leave payments?
Women in the workforce are legally entitled to benefits while they take time off to stay home and care for their baby, (as are their partners, if they choose to be the primary carer). These include parental leave, paid parental leave, and government parental leave. However, you can't be forced to take maternity leave.
Parental leave: As a new mum, you're entitled to a total of 52 weeks of unpaid leave to care for your newborn or adopted child if you've worked with your employer for at least 12 months. When returning to work, you're also entitled to the same position you held prior to leaving.
Paid parental leave: You can receive paid parental leave from your employer if you've worked with them for more than twelve months before the expected date of birth. You're allowed at least eight weeks of paid parental leave. Visit the Fair Work website for more on your rights.
Government parental leave: If you earn less than $150,000 before tax, you're entitled to the national minimum wage of $641.05 per week for up to 18 weeks. Check whether you're eligible online at Centrelink.
Below are some things to consider before you apply for a loan:
- Interest rates are currently at an all-time low, but they're not expected to stay that way. Could you keep up with the repayments if they were to rise by 3%, for example? Financial counsellors at Consumer Action Law Centre in Victoria advise borrowers to consider the longer term. A low fixed rate is appealing, but if the market changes borrowers might find at the end of the fixed period that rates have soared, blowing their budget. "Even in a low interest environment, the lender must ensure the loan meets the borrower's needs and does not cause undue hardship," says Penelope Hill, manager of Consumer Action's Moneyhelp service. "This should include considering the prospect of interest rate changes."
- It is possible to reduce repayments while you're on maternity leave. Banks will allow you to reduce your home loan repayments – or in some cases, pause them completely – for a period of time. However, there are certain requirements that you must fulfil as well as specific documentation that you will have to provide. Some banks charge fees and need you to have had your home loan for at least 12 months. Other requirements may include a letter from your employer stating your intention to return to work along with your recommencement salary. Keep in mind that in most cases, the loan still has to be repaid within its original term, so it's a good idea to plan ahead and make extra loan payments as a buffer.
- Set up a high interest savings account and transfer your expected mortgage payment each week (also factor in a 3% hike). This will accelerate your deposit savings and also show if you can afford a mortgage.
- ASIC's Money Smart website is a great go-to for tips on how to help you save money, budget appropriately and get advice on home loans or how to financially prepare for your baby. The Parental Leave calculator will show you what income you have over your break so you can plan your money, as well as the impact taking a shorter or longer time off work will have on your income. The website also has a toolkit especially designed to meet the needs of women, including financial advice for when you're having a baby.
For more advice on budgeting and planning around the birth of your child, see Getting ready for baby in our Babies and kids section.