New childcare funding could add £100,000-plus to London homebuyers’ budgets

New childcare support announced by the Chancellor in his Spring Budget last week could add tens of thousands of pounds to the property budgets of new and expecting parents across the capital.

Mortgage experts said the measures, which are due to be rolled out in stages from April 2024 to September 2025, could be transformational for prospective London home buyers with young families.

Chancellor Jeremy Hunt promised to end the “cliff edge” between maternity pay and existing support for pre-schoolers with a promise of free childcare for parents of toddlers (see box below).

With inner London nurseries charging an average of almost £8 per hour for children under the age of two, the policy could eventually be worth more than £9,000 per year to a working parent with one small child — and almost double that for those with two.

But the impact on housing affordability could be far greater.

How will it impact first-time buyers?

Adrian Anderson, director at Pimlico-based property finance specialist Anderson Harris, said the childcare pledge could allow many young parents to get on the property ladder having previously been locked out of home ownership.

Others may be able to raise their sights significantly in terms of space or location within the capital, he added, while some families will be released from a dreaded status as “mortgage prisoners”.

Anderson described a hypothetical couple earning £100,000 between them, and spending £1,450 per month on nursery fees — a scenario he described as typical among his clients. Running their finances through a high street lender affordability checker, and making certain assumptions, he found they could borrow almost a third more — an extra £101,440 — when the new policy kicks in fully.

Chancellor’s childcare pledge

What Jeremy Hunt promised in the Spring Budget

• From April 2024, two-year-old children of eligible working parents will qualify for 15 no-fee hours at nursery or equivalent for 38 term-time weeks per year

• Five months later, this will be extended to cover children aged as young as nine months

• By September 2025, the provision will be increased to 30 free hours per week

• At the end of the rollout (September 2025), working parents will be able claim free hours for children from the age of nine months until they start school

“Childcare fees of potential borrowers are scrutinised by the banks and have a real impact on affordability capacity,” said Anderson. “In some scenarios, they may be more than a monthly mortgage payment, especially if there are two children at nursery.

“This expansion of free childcare in 2024 will make some families mortgageable, enabling them to get on the ladder or secure the right property to meet their needs. It could also, for some families in London, mean the difference in being able to purchase a house over a flat.”

Meanwhile some families stuck with their current home loan provider could be released by the Chancellor’s plan.

”We have scenarios where we had arranged a mortgage for a young couple who have gone on to have a child and hefty childcare fees have meant the they no longer qualify for the mortgage they have — and don’t qualify to consider a remortgage,” Anderson said.

Double whammy

Andrew Montlake, managing director of mortage broker Coreco, agreed that the expansion of paid nursery places could “make a big difference”.

“It does happen where we do the calculations and childcare costs mean people can’t quite borrow what they want so have to scrabble around for a bigger deposit or switch their attention to a cheaper property or somewhere not in their first-choice area,” he said.

There could be a “double whammy” from the new policy, he added.

“If you are not paying as much for childcare and can afford to work four days a week rather than two then that can really boost your income and borrowing potential. It could be really good news for people looking to buy in the future.

“It could mean someone can get that property they’ve always wanted but couldn’t afford. At the moment, with the cost-of-living crisis, expensive rents and property prices staying high, young parents face serious challenges. Deposits can be an issue and the more you can borrow, potentially the less you need up front.”

Simon Bath, founder of property technology provider iPlace Global, said inner London nursery costs were a fifth higher than those outside the capital.

“This could make a huge difference to Brits who have been unable to work due to the unaffordability of childcare,” he said.

“A helping hand from the government is likely to provide them with the opportunity to re-enter the workplace, boosting their income by thousands of pounds, which could make a significant difference in the long run — especially in housing.”

An increase in disposable income will give people more choice when it comes to housing, Bath added.

“This ranges from having more spending power in the rental market to more permanent options such as saving for a deposit or upsizing.

“We could see an increase in spending power across the board, not just for mortgage holders but for those looking to enter the housing market.”