Can You Get a Home Loan While on Maternity Leave?

When it comes to life's major decisions, two that often top the list are buying a home and starting a family.

Both require careful planning and foresight, especially when the milestones happen simultaneously.

If you're expecting a new addition to your family or you've recently welcomed one and you're considering purchasing property or refinancing your home loan, you might be wondering how your bundle of joy could impact your mortgage application.

After all, while babies bring immense joy, they also demand significant time and resources, which can see employment taking a backseat once they arrive.

Home loan lenders are typically aware of these changes and often factor maternity, paternity, or parental leave into the equation when assessing mortgage applications.

If you or your partner is currently on, or about to take, maternity or parental leave, here's what you need to know to maximise your chances of securing a home loan.

Can you get a home loan while on maternity or parental leave?

Most banks and lenders do not have strict, specific guidelines that automatically disqualify borrowers who are taking or are on parental or maternity leave.

In fact, your family status likely won't (or at least shouldn't) be a direct concern.

Importantly, lenders legally can't deny a person purely based on their pregnancy or parental status. They also can't offer a less competitive loan to someone who is pregnant or has kids, or a person they believe could become pregnant, based on their family status. Doing so could be considered discrimination under the eyes of the law.

However, lenders will look at your circumstances closely to ensure you can manage your home loan repayments. That means you'll likely have to provide documents including:

Proof of income, such as pay slips
Evidence of your expenses and assets
A letter from your employer confirming your return to work and salary
Evidence of any government support you receive during parental leave

"Lenders cannot discriminate, but they do have responsible lending obligations," Financial Rights Legal Centre acting CEO Alexandra Kelly told Your Mortgage.

"This means they need to ask reasonable questions about your needs and goals, your financial circumstances, such as your income and expenses, assets and debts, and then take reasonable steps to check that the information you gave about your financial circumstances is correct."

Does maternity or parental leave affect your mortgage application?

Lenders might be extra cautious when examining your income during your maternity or parental leave, as well as your plans for returning to work, to ensure you'll be able to continue managing mortgage repayments.

So, if you don't plan to go back to work and you don't have another source of income, your home loan application could be in strife.

"Ultimately, lenders have control of who they choose to make loans to," Ms Kelly said.

"They'll take your personal circumstances into account, including what your plans may be in relation to entitlements whilst you are on leave and your plans to rejoin the workforce, but their decisions will also be guided by the bank's broader risk appetite."

Your lender may also request additional documentation, like a letter from your employer confirming when you'll be returning to work and your expected income post-leave.

If it does, don't worry. It's likely just because it has to consider any potential change in income in an applicant's future when assessing their ability to repay a mortgage.

And, of course, you'll likely have to hand over a wealth of information about your finances, no matter your personal or family situation. This includes information on the number of dependents you support, as raising children costs money.

"Being able to show you can afford the loan you are seeking, including if you're building in a buffer for reduced income due to having a family, extended travel, or a career sabbatical, is going to be important information for a lender in making their assessment," Ms Kelly continued.

"Show how you intend to continue paying while you take temporary unpaid leave or are on a reduced income."

Which banks offer mortgages to parents on maternity or paternity leave?

While it's likely that many banks and lenders consider paid parental leave and parental leave payments as income, some of the big four banks specifically advertise that they do so.

Westpac and NAB are among those that are clear in what they do and do not consider income when it comes to maternity or parental leave.

Both banks take into account parental leave payments and 'return to work' salaries when assessing a borrower who is pregnant or on maternity leave.

A return to work salary is the income a person can expect to receive when they head back to work following their parental leave.

"We listened to women who said they didn't feel empowered to apply for a loan during pregnancy or on parental leave," then-NAB general manager of home loans Meg Bonighton said in 2016.

"Part of doing the right thing and showing respect for people is taking the time to understand the special moments in their lives - and ensuring their financial goals are supported throughout life's amazing journey."

How much income might you receive on maternity or parental leave?

It's important that you make clear to a lender whether you're taking paid or unpaid parental leave - the former might give you a better chance of home loan approval.

If you're taking paid maternity or parental leave, your employer will continue paying out some or all of your salary for a specified period of time. How much you might receive will likely depend on your income prior to taking leave, your employer's parental leave policy, and any further negotiations you've had with your employer.

If you have, or soon will have, a newborn or you've recently adopted a child and you meet income thresholds, you can likely get between 100 and 130 days of Parental Leave Pay days, whereby you'll be provided the minimum full-time wage via Services Australia.

Date of child's birth or adoption	Number of Parental Leave Pay days available to your family	Days reserved for your partner (if applicable)
From July 2023	100 days (20 weeks based on a 5-day work week)	10 days
From July 2024	110 days (22 weeks based on a 5-day work week)	10 days
From July 2025	120 days (24 weeks based on a 5-day work week)	15 days
From July 2026	130 days (26 weeks based on a 5-day work week)	20 days

You can take these paid days before, during, or after your employer's maternity or parental leave if you wish. You can also take them in a continuous block or on a flexible basis.

If you wish to take a longer stint of parental leave, you're entitled to 12 months of unpaid leave under Australian law, as long as you've worked for your employer for 12 months prior. This can be extended by another 12 months through an agreement between employee and employer.

Do you have to tell your home loan lender that you're pregnant?

Whether you're applying for a home loan or you already have a mortgage, you do not have to tell a lender that you or your partner is expecting a baby.

If you want to tell a lender that you're expecting, you're more than welcome to. It's exciting news after all. However, if you or your partner is pregnant and you're considering applying for a home loan without telling your lender, you might want to reconsider.

It's a good idea to let your lender know if, at the time of your application, there's anything going on that could impact your ability to repay the home loan down the track.

Many lenders will ask borrowers to declare if, as far are they're aware, their circumstances could change within the next 12 months, "starting a family can fall into this category," Ms Kelly said.

"It would be unwise to mislead a lender about your current financial situation when applying for a loan [and] financial firms are obliged to verify what you've told them and rely on your answers.

"If you end up financially overcommitted, ultimately you are the one who will bear the consequences."

Do banks or lenders discriminate against people on parental or maternity leave?

In 2022, the ABC reported allegations that banks and lenders were "routinely" discriminating against women on paid parental leave. It suggested that, due to assumptions women mightn't return to the workforce after parental leave, "onerous requirements" are placed on home loan applicants on parental leave.

Such allegations of discrimination were actually requests for further verification of a person's plans to return to work and their expected salary, according to the Australian Banking Association (ABA).

In response to the report, ABA CEO Anna Bligh told ABC NewsRadio Australian banks must ask for proof a person will be able to continue meeting repayments if their circumstances are expected to change.

"Australia's banks, like many other parts of the community, have obligations under the Anti-Discrimination Act of Australia, and they take those obligations incredibly seriously," she said.

"Those obligations, however, sit beside other obligations, such as a requirement at law to rigorously test a person's income and expenses before giving them a lending product, and not only to test them, but to have documentation to verify them."

"This is no different than … [if an applicant said] they're getting a promotion that starts in January, and they want to apply for a renovation loan - the bank would ask for a letter from their employer to verify the promotion."

If you've ever been denied a loan before, you'll know it can be a hard pill to swallow, especially if you believed the lender's ruling was unfair.

However, banks and lenders simply aren't required to provide home loans to every person who applies.

"Banks are not obliged to lend to you just because you have asked for a loan," Ms Kelly said.

"There can be any number of reasons you are not approved for a loan, and it may be difficult to get a clear answer on the exact reason you were declined."

What to do if you feel a bank or lender has discriminated against you

Of course, banks and lenders have the potential to get it wrong.

If you think a bank or lender may have discriminated against you due to your pregnancy or family status, you can make a complaint to the Australian Human Rights Commission.

Does it matter how long your maternity leave is?

Unfortunately, if you're applying for a home loan while you or your spouse is on parental leave and you expect you'll need both wages to meet your repayments, you or your partner might have to plan to return to work with a year or risk being denied.

Most lenders that advertise the fact they consider parental leave and return to work salaries when assessing home loan applicants do so on the proviso that the parent on leave will return to work within 12 months.

What can you do to increase your chances of getting approved?

Whatever your family's situation, if you're planning to purchase a home or refinance your home loan, you'll likely want to ensure your mortgage application is as strong as possible.

There are plenty of factors that go into making a good home loan application, including the size of a person's deposit, their credit score, and their financial habits.

To boost your chances of getting the green light for your home loan, you might take steps to tidy your spending, ensure you pay all bills, loan repayments, and credit card repayments on time, and work to increase the size of the deposit you plan to put down.

If you're concerned about your chances of securing a home loan or simply want expert guidance through the process, consulting a mortgage broker might be worthwhile.

Mortgage brokers are obligated to act in their clients' best interests. However, keep in mind that they typically only have access to a portion of the mortgage products available on the market, which means they might not always offer the most competitive home loan for your needs.

How to manage your mortgage repayments while on maternity or parental leave

Taking maternity or parental leave can be anxiety-inducing. Not only does it involve welcoming a new baby and adjusting to a new way of life, it also brings financial changes.

If you or your partner are taking time off work to soak up the early days of parenthood, chances are you'll also need to tighten your belts.

Fortunately, many home loan lenders offer flexible solutions for those who need a short break from meeting one of their largest regular expenses. Though, taking your lender up on any such offer may have consequences down the road.

If you're struggling as you read this, you might want to consider reaching out for help.

"Banks are obliged to provide temporary hardship arrangements for people experiencing financial hardship," Ms Kelly said. "Getting in touch with the lender early is important.

"The National Debt Helpline offers free financial counselling and an online chat service [on] 1800 007 007."

Repayment holiday

As any parent who has brought home a new baby will tell you, parental leave is no vacation. But taking a repayment holiday could ease some of the associated financial challenges.

A repayment holiday is pretty much what it sounds like - a break from your mortgage repayments. These breaks typically last between three and 12 months and see a borrower alleviated from what is likely their biggest day-to-day outgoing.

The downside of taking a repayment holiday is that it won't stop interest from accruing. Rather, interest will likely be added to your home loan's principal balance. This can extend the life of your mortgage and leave you paying more interest over the years to come than you would have otherwise.

Interest only repayments

If you wish to avoid capitalised interest, you might be better off switching to interest only repayments.

If you have a typical owner occupied home loan, chances are you're making principal and interest repayments. Ergo, you're paying back the funds you borrowed to buy your home, as well as the interest accruing on those funds.

A borrower making interest only repayments, on the other hand, won't repay any of their debt. This means their repayments will be smaller.

If you switch to interest only repayments, it's important to remember the size of your repayments will likely be larger on the expiry of your interest only period than they were before, as you'll have to pay back your principal balance in fewer years than previously planned. But you won't end up paying interest on interest, as you would if you took a repayment holiday.

Refinance your home loan

If neither of the above options tickles your fancy but you still want to reduce the size of your home loan repayments, you might consider refinancing.

Refinancing means to change your mortgage, whether it be to a different product or moving it to a different lender.

Doing so could see you realise a lower interest rate, access more useful features (perhaps an offset account), or even fix your rate for peace of mind over your interest rate.

^{Image by Taylor Gray on Unsplash}

Collections: Refinance home loans

How to secure a home loan while on maternity or parental leave