"No, we do not have babies."
Translation:Nein, wir haben keine Babys.
Babys is the new, 'official' translation. The "neue Rechtschreibung" (latest spelling reform) has determined that the plural of English words used in German ending with -y is to be -ys. Before that, "babies" was used as the plural. Both are (still) acceptable, but the official translation is better. So throw out those old Babies with the bathwater, and welcome your new Babys!
If I am correct, you answer should have been correct. However, "Nein, Babies haben wir nicht," is still correct due to the German syntax. It is correct because the verb is the second element of the sentence with the subject following directly after. It follows the rules just fine. If you are wondering, nein is an interjection so it doesn't affect the structure of the rest of the sentence. Everything proceeding it follows the structure.
I hope I was correct as well as helpful.
I agree with your explanation about the positioning of the verb but the position of 'nicht' is not correct, it should be after 'haben'. So, "Nein, wir haben nicht Babies", but what I learned from the lesson about negatives, 'keine' are usually used instead of 'nicht' since there is no article used before the word 'babies'.
I hope I'm correct.
I am getting three German options, all of which say "Babies" instead of "Babys". In other discussions, and below, it's stated that "Babys" is correct German and "Babies" is not. When I tried to report it, the only option is "The English sentence is unnatural or has an error." which is not the issue. I don't know how else to report this.