How childcare costs affect your mortgage affordability

5 min read · June 2026

Full-time nursery for one child in England costs an average of £15,000–£18,000 a year outside London — and significantly more inside it. That's more than many car loans, student loan repayments, or personal loan obligations. And unlike most debts, it doesn't show up on a credit file.

But lenders know about it. And it affects how much you can borrow more than most people expect.

How lenders actually treat childcare costs

Since the Mortgage Market Review in 2014, lenders are required to assess whether you can genuinely afford the mortgage — not just whether your income is high enough. That means asking about regular committed expenditure, which includes childcare.

Different lenders handle it differently:

• Some ask you to declare monthly childcare costs upfront and factor them into their affordability model
• Others use an automated credit scoring model that doesn't directly ask, but uses income multiples adjusted for dependants
• Most major lenders will reduce the amount they're willing to offer once childcare costs are declared

The reduction can be significant. A couple with a combined income of £70,000 but £1,400/month in nursery fees might find their maximum borrowing reduced by £60,000–£80,000 compared to a couple with the same income and no childcare costs.

Tax-Free Childcare: worth using before you apply

If you're not already using Tax-Free Childcare, start before your mortgage application. The government tops up your childcare account by 20p for every 80p you deposit — up to £2,000 per child per year (£4,000 for disabled children).

It won't transform your affordability calculation, but it reduces the actual cash cost of childcare each month, which is what lenders are measuring against your income.

The childcare cliff — and planning around it

As of September 2024, the government expanded funded childcare hours. Children from 9 months are entitled to 15 hours of funded childcare per week, rising to 30 hours from age 3. This is a meaningful reduction in costs — but it comes in phases, and 30 funded hours doesn't mean free childcare.

If your mortgage application is being assessed now but your childcare costs are about to drop significantly (because your child is turning 3, or starting school), it's worth discussing this with a mortgage broker. Some lenders will take a more flexible view if the cost reduction is imminent and evidenced.

What this means for your budget ceiling

Don't borrow to your maximum when you have significant childcare costs. The amount a lender offers you is calculated on your current costs — but childcare costs can rise (second child, holiday clubs, wraparound care), and your income can change.

Build a conservative buffer. If childcare costs drop in two years when your child starts school, you'll have genuine breathing room. If you've borrowed to the limit assuming costs will fall, and they don't, you won't.