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Extra free childcare hours could boost mortgage affordability for parents

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01/09/2017
Parents of pre-school children could see a 17% increase in the amount they can borrow thanks to the government’s new free 30-hour childcare scheme, according to Yorkshire Building Society.

From 1 September, parents with children aged three and four years could be eligible for 30-hours free childcare a week. That is double the 15 hours all working parents were previously entitled to.

Yorkshire Building Society estimates that couples could potentially save more than £210 each month, based on the average full-time childcare costs being £963 a month.

“This monthly saving could be used to pay off their mortgage earlier, or for those looking to move up the property ladder the savings may help to increase the amount they could borrow,” said Yorkshire in a statement.

Around 390,000 families across the UK are eligible for the scheme, which will be backed by an extra £1bn per year by 2020.

A typical couple, both earning the national average salary of £26,156, with a child 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.

If they receive 30-hours free childcare the couple could borrow up to £213,244, which is an increase of £30,716.

“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,” said Charles Mungroo, mortgage manager at Yorkshire Building Society.

“Parents who are happy in their current property could use the extra cash for home improvements or an extension. They may also consider making overpayments on their mortgage to pay it off quicker,” he added. “A word of caution though, most lenders will charge borrowers if they overpay beyond a certain percentage of their home loan, so always check the small print first.”

Reasons for caution

And there are other reasons to be cautious. According to critics of the scheme, the savings families can make will not actually be that great as nurseries will start charging for other service features instead to make up for the loss.

According to one evaluation, eight out of ten childcare providers were willing and able to double their current 15 hours offer.

But sector leaders warned in July that the new government scheme has led to nursery closures in the UK with more to come.

This is because the Government is offering a 39p lower rate than the hourly cost of childcare, and the nurseries can no longer make up the gap by charging more for additional hours as many families don’t need more than 30 hours in total.

According to sector experts, the new policy would be viable if there was an increased hourly rate and a change in the rules to allow nurseries to implement a compulsory charge for meals and other extras.

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