Free childcare could boost parents’ mortgage borrowing power

Parents with pre-school aged children could be able to borrow 17 per cent more on a mortgage with the launch of the government’s free childcare schem

Parents with pre-school aged children could be able to borrow 17 per cent more on a mortgage with the launch of the government’s free childcare scheme, according to a lender.

From September, parents with children aged three and four-years-old could be eligible for 30 hours of free childcare a week, meaning they could potentially save more than £210 each month, according to Yorkshire Building Society.

With the estimated average monthly cost of full-time childcare reaching £963.56, those receiving the benefit could be able to borrow significantly more on a new home or additional loan.

A typical couple both earning the national average salary of £26,156 with a youngster in full-time childcare receiving the universal free 15 hours’ childcare a month could borrow a maximum of £182,528 with the Yorkshire over a 25-year mortgage term.

But if they receive 30-hours free childcare, the amount they could borrow rises to £213,244 – an increase of £30,716.

The news could provide a further boost for first-time buyers, who have recently helped to buoy the property market.

Charles Mungroo, mortgage manager at Yorkshire Building Society said: “An expanding family usually means there’s a need for more space, which can be a struggle for parents who are shelling out almost a £1,000 a month on childcare.

“The new government initiative is great news for parents’ ability to buy the home they want. The extra cash will really make a difference, particularly for those looking to move on to or up the property ladder.”

Adrian Kidd, IFA at London-based Radcliffe and Newlands, said Yorkshire’s research was helpful for advisers but warned of potential problems when the free childcare allowance expires.

“It comes down to borrowing responsibly. When you come to remortgage and that help has fallen away, you could be held on a standard variable rate (SVR) with the lender, which is a much worse situation,” he explained.

“A good adviser would look at this policy and say ‘what will you do in two years’ time when that drops off?’ The older children get, the more expensive they become. There are so many questions that could potentially affect the borrowing.

“If a client is doing their own mortgage, I don’t think they will ask themselves those questions. If they do become a mortgage prisoner on an SVR where they can’t borrow the same amount as two years before, that is a real problem.”

simon.allin@ft.com

Go to Source

COMMENTS