Home loan offers cut to borrowers with children

Monday 07 February 2011

Article by Mozo

Borrowers with children are being offered smaller home loans because of fears about their ability to meet repayments, it has been revealed.

Home loan offers cut to borrowers with children

An investigation in the Sunday Telegraph notes that since the introduction of new laws governing "responsible lending" on January 1st, banks and building societies have cut the maximum mortgage amounts being offered to families.

According to the report, most lenders are now using a universal formula based on the Henderson Poverty Line in order to judge the additional costs of bringing up children, which is then factored into the loan decision.

Based on calculations by mortgage insurer Genworth, it was shown that a childless couple with an income of $60,000, who are applying for a home loan at 8.5 per cent, could qualify for a maximum loan of $280,000.

However, a couple which had the same income and was applying for the same rate but had four children would only qualify for a maximum $229,000 loan once the Family Tax Benefit was taken into account.

Dean Rushton of Loan Market Group suggested that such lending practices would make it harder for borrowers to compare home loans and refinance once they started a family.

"There's a danger that families could erode the amount that they can borrow to such a degree that they end up trapped," he said. "Your borrowing capacity will go backwards."

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