Since the Financial Services Authority conducted its review of the mortgage market following the latest credit crunch, lenders have become much more wary of loaning money to less-than-gilt-edged borrowers. The fear of a borrower’s inability to pay back the loan has tightened the criteria that lenders use as the basis for whether they make a loan and if so, how much. Mortgage brokers are finding that in general, couples with children are considered higher risks. As a result, parents can’t borrow as much as childless couples or singles with the same income.
Depending on the lender, the reduction in the amount loaned may be from ten to twenty percent less for applicants with children. The basis for this practice is the idea that children cost money, and theoretically the more children, the greater the cost to parents.
However, financial analysts point out several discrepancies in this reasoning.
Most lenders qualify children as persons under the age of 18, but the fact is that many parents spend more on university fees than at any other time in the child’s life. Also, couples who are childless when the loan originates may not be childless for long, which changes the equation. Another argument is less documented but probably applicable: young couples with children tend to spend money more responsibly than their childless counterparts. While parents are investing in a new stroller, the non-parents can choose to have a night out, at about the same cost.
The ‘affordability’ of a new or refinanced loan is based on various factors, and the fear is that borrowers with children to support will have an even harder time when rates start to rise again. They may be unable to obtain an affordable loan with the criteria now in use.