Jessica, one of our clients, asked us: “I’m currently on parental leave and my husband and I wish to purchase a property in New Zealand. My bank has told me that we won’t be able to borrow the amount we wish to until I return to work, so are there any lenders that may help us?”

This is no doubt a concern for many new parents or parents to be. If you’re going to have parental leave or you are on parental leave, you may be surprised that your bank may not be able to consider your income when you apply for a home loan. That’s why in this article, we discuss why parental leave affects your borrowing power and reveal the solution.

Getting a mortgage on parental leave

1. Getting a mortgage on parental leave, why is it difficult?

When you plan to take parental leave or you are on parental leave, unfortunately, most of the banks won’t consider your income until you return to work. Here are two main reasons:

(1) Uncertainty and reduced income

You may intend to return to work in 6 or 12 months after giving birth. But in some cases, this isn’t possible:

• You may extend your leave because you wish to spend more time to take care of your newly born baby.
• Or, after coming back to work, your income will be reduced as the result of the part-time role or reduced working hours.

From a lender’s perspective, applying for a home loan while on parental leave makes you a riskier applicant because your actual income after returning to work can be temporarily reduced. Plus, whether you will return to work or not remains a question.

As a result, many lenders won’t approve your mortgage until they know what the exact income you will have after you return to work.

(2) Additional living expenses

Having a baby costs money, such as childcare, baby products and baby food. From a lender’s perspective, an additional family member means extra living expense. Your disposable income will be reduced, and therefore, you will borrow less for the home loan.

2. Best mortgage lenders for parental leave

Although many New Zealand banks have strict lending policies, the good news is that BNZ has a favourable lending policy in terms of parental leave. They may consider your income and allow you to borrow while on parental leave or about to start.

However, if you will not return to work within 3 months, there are certain requirements that you must fulfil and specific documents that you’ll have to provide:

• You have been working for your current employer for at least one year, and you’re a permanent employee.
• An employer letter specifies the date you are supposed to return to work, working hours and salary after returning.
• Considering the reduced income, how are you going to service the loan while on parental leave? Such as the deposit you have, or unused revolving facility.
• Once returning to work, what is the plan for the childcare? How much are you going to pay?

3. Two tips for parental leave and home loans

(1) Re-consider your criteria while house hunting

If you’re house-hunting while on parental leave or plan to have, you may want to re-consider the criteria of the property you wish to purchase, such as the location, size and budget. This is because you may have different requirements on the property after you have a baby.

(2) Don’t rush to a mortgage and do a budget calculation first.

Before you apply for a home loan to buy a property, we highly recommend you have a self-assessment if you can afford to repay the loan while on parental leave. There are a lot of uncertainties, such as your salary after returning. So, only applying for a home loan against a property when you can really afford.

Want to know more about parental leave home loans?

Prosperity Finance can help you to plan so you understand what to expect when you or your partner have parental leave. Your bank may not be able to help, but we are happy to advise on the best options for your situation. Call us at 09 930 8999 for a no-obligation chat with our adviser.

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Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.