One in six families have been offered a smaller mortgage from a lender due to their childcare costs adding to parents stress and anxiety.

Research by uSwitch has revealed that one in six families have had their mortgage application declined or offered a smaller loan as childcare costs are taken into account in affordability calculations.

For first time buyers, home movers and switching remortgage buyers with young children over two-thirds intentionally reduce the cost of childcare during a mortgage application.

Affordability assessments were introduced following the Mortgage Market Review in April 2014 and lenders will take childcare costs into consideration when offering a mortgage.

Childcare costs are rising

The cost of childcare has increased by 38% in the past five years according to the Family and Childcare trust.

In the uSwitch survey 1,000 parents with children 12 and under who have applied for a mortgage in the last ten years were consulted.

To secure the borrowing they need a mortgage, 68% of families affected say they have had to hide the true cost from lenders. Parents have resorted to using different approaches to reduce their childcare costs as follows:

Proportion of parents using these tactics
30%	Relied on grandparents for free childcare
27%	Asked friends to pick up kids from nursery or school
23%	Reduced their working hours to look after children

Rather than paying someone else, some parents would look after their own children by working fewer hours several months before making their mortgage application.

Of those actively reducing costs, 56% did so as they were worried the extra expenditure would prevent them from securing the best rates while 48% feared their application would be rejected altogether.

Tashema Jackson, money expert at uSwitch said it is worrying that many feel under pressure to conceal these costs during the mortgage application process, as this may have a severe impact on their ability to meet repayments in future.

The affordability test has had a significant emotional impact with 60% of parents experienced high levels of anxiety and 48% say it caused arguments in their relationship.

Help for first time buyers or home movers can come from family members as the equity release buyer can access wealth using a lifetime mortgage to give to a child increasing the deposit on their home.

Lenders have inconsistent approach

The uSwitch research also reveals inconsistencies between lenders and the questions they ask to determine an applicant’s eligibility.

The affordability tests apply to all residential mortgage applicants including first time buyers, home movers and switching remortgage buyers.

Of families surveyed, 41% said their lender didn’t ask or take into consideration the ages of their children, to find out if costs may reduce in the near future.

Only 39% of families were asked how their childcare costs may change as their children got older as the cost can drop by up to half between the ages two and three, when the government’s free childcare scheme starts.

Ms Jackson said parents are being stung with sky-high childcare costs which in turn are impacting their ability to secure the best mortgage deal.

Lenders are responsible to ensure families can afford future repayments but they also need to reassure homebuyers that their whole financial picture is being considered, such as the age of their children, says Ms Jackson.

Affordability tests do not apply to buy-to-let landlords as they must have a 25% deposit and show the rental income can exceed 125% of a notional mortgage interest rate.

What are your next steps?

Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home to a new cost effective mortgage deal or are a buy-to-let investor.

For equity release buyers our London City Mortgage brokers can recommend lifetime mortgages allowing you to receive cash from your property to help maintain your standard of living as costs rise.

Learn more by using the mortgage cost calculators, equity release calculator and property value tracker chart. Start with a free mortgage quote or call us and we can take your details.

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