Mortgage and Bank Statements: What You Need to Know

Applying for a mortgage as a first-time buyer can feel daunting, especially when you're unsure what lenders look for. But why do mortgage lenders place so much importance on your bank statements? These documents provide a clear and factual record of your financial activity over the past few months (typically 3 to 6).

Lenders use them to verify the income you've declared, assess whether you can comfortably afford your mortgage repayments by looking at your spending habits, confirm the source and availability of your deposit, and identify any financial behaviours that might indicate a higher risk of default.

There's no guarantee that at the end of the mortgage application process, you'll walk away with the loan you need to buy a property.

In particular, if your mortgage underwriter finds that you've made payments for certain items, they may reject your whole application. These are:

What you can't have on your bank statements when applying for a mortgage

You might be surprised at the level of scrutiny your bank statements will undergo when you apply for a mortgage. Lenders use these records to build a picture of your financial habits and assess your ability to manage mortgage repayments.

It's not all about what to avoid, though. Lenders also look for positive signs, such as a consistent income matching your declared salary, responsible spending habits that show you live within your means, and evidence of regular savings.

Nowadays, you have to give in-depth information from your bank statement about what you spend each month including on, but not limited to:

Certain transactions can raise red flags and potentially jeopardise your application. Here's what you absolutely want to avoid showing up on your bank statements in the months leading up to your mortgage application:

• 1

  Online Gambling

The online gambling market in the UK is huge, with a value of £4.4 billion in 2024 (Source: Gambling Commission).

While a casual bet might seem harmless, regular or significant payments to online gambling websites raise a major concern for mortgage lenders.

They view gambling as a risky behaviour, and applicants who frequently engage in it may be seen as less financially stable and more likely to default on their mortgage.

Mortgage lenders prioritise low-risk applicants through their thousands of mortgage applications each month. Your gambling transactions will be picked up by lenders when they review your bank statements.

Even if you can afford your gambling habits now, lenders worry about how this might impact your ability to pay your mortgage if your luck changes or other unexpected expenses arise. For first-time buyers especially, demonstrating financial prudence is key.

• 2

  Unauthorised (or even authorised) Overdrafts

Many people have an overdraft facility, but regular use, whether authorised or unauthorised, can signal to a mortgage lender that you are struggling to manage your finances.

While an authorised overdraft can provide a safety net, consistently being in your overdraft suggests you rely on it to cover your monthly expenses.

But can you actually get a mortgage with an overdraft? As an overdraft isn't a formal loan agreement and can be called upon by the bank at any time, lenders are particularly concerned about constant overdraft usage.

It indicates poor spending habits or that your income doesn't cover your outgoings. For a first-time buyer, demonstrating you can live within your means is crucial.

An unauthorised overdraft, where you've exceeded your agreed limit or have no formal agreement, is an even bigger red flag.

While you might just see it as paying a bank charge, lenders view it as a sign of poor financial control and a higher risk of mortgage default.

Aim to only use your overdraft for emergencies and clear it promptly each month. Treating your full overdraft as your 'zero balance' is a practice to avoid before applying for a mortgage.

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• 3

  Payday Loans

'Payday' loans, often seen as a quick fix for short-term cash flow issues, can leave a significant negative mark on your mortgage application.

The CMA (Competition and Markets Authority) investigation in 2012 revealed the scale of this market, with approximately 10.2 million loans worth £2.8 billion taken out.

These loans are characterised by high interest rates (sometimes exceeding 4,000% APR) and are viewed by mortgage lenders as a sign that you may have difficulty managing your finances.

Even if you've repaid the loan, the fact that you needed to resort to such a high-cost form of borrowing suggests a higher risk profile to lenders.

First-time buyers should be especially wary of payday loans, as they can severely impact your chances of getting approved for a mortgage.

Additional Red Flags

• Untraceable Cash Deposits: Large amounts of cash appearing in your account without a clear source can raise questions for lenders.
• Returned Direct Debits or Bounced Payments: Frequent occurrences of these suggest potential issues with managing your regular outgoings.
• Large or Unusual Transactions: Be prepared to explain any significant deposits or withdrawals that are out of your ordinary spending pattern.
• Payments to Undisclosed Sources: Lenders will want to understand where your money is going, so unexplained regular payments could be a concern.

Top Tips for getting a mortgage after financial setbacks

Lenders understandably prefer applicants who demonstrate responsible financial habits. If you're concerned about past issues like online gambling, overdraft usage, or payday loans showing on your bank statements, don't lose hope.

Here's a crucial tip from mortgage brokers: Stop using these types of financing facilities immediately and aim to wait at least 6 months before applying for a mortgage. This demonstrates a period of improved financial management.

Furthermore, it's essential to regularly monitor your credit report. This allows you to identify and address any inaccuracies or negative marks that could affect your mortgage conditions and overall eligibility.

Note for Self-Employed Applicants: If you are self-employed, lenders will typically require more than just personal bank statements. Be prepared to provide business bank statements and potentially years' worth of accounts and tax returns to demonstrate the stability of your income.

Social Media: What you post matters

In today's digital age, your online presence can play an unexpected role in your mortgage application. Many financial companies, including mortgage lenders, are increasingly using social media platforms to verify the information you provide.

As part of their assessment of mortgage conditions and your overall risk profile, lenders might review your publicly available social media profiles.

Discrepancies between what you've stated in your application and what you post online could raise concerns and potentially jeopardise your chances of approval.

Honesty Online

• LinkedIn: Be truthful about your job history. One mortgage broker encountered a client whose mortgage was declined due to inconsistencies in their self-employment dates on LinkedIn. The key takeaway: don't misrepresent your employment details.
• Facebook & Property Intentions: What you post about your property plans can be scrutinised. For instance, if you're applying for a residential mortgage but your Facebook posts suggest you intend to rent the property out, or vice versa, this could lead to issues.
• Facebook & Relationship Status: Lenders also look for consistency in personal information. Discrepancies in relationship status on social media compared to your application (perhaps to hide a partner with a poor credit history or falsely inflate household income) can be easily discovered.

Emerging technology even allows companies like Friendlyscore to analyse social media activity to predict financial behaviour, particularly for individuals with limited credit history.

While these newer services often require your explicit consent to access your accounts, the general principle remains: if you're not being entirely truthful with your lender, your social media footprint could provide evidence to the contrary.

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