You are about to buy a home and need a mortgage or maybe your existing rate is coming to an end and you need to remortgage. Just like the majority of people, you have a bank account with an overdraft, but you are worried that you may get turned down for a mortgage because of this.
Will I be turned down for a mortgage because of my overdraft? This is a question often asked when needing to arrange a mortgage. Most lenders will not turn you down for a mortgage as long as you do not have an over-reliance on the overdraft.
In this guide, we will take a look at how the different banks and building societies take an overdraft into consideration when they make a decision on if they will offer you a mortgage or not. We will set out what will make a lender say no to giving you a mortgage and also what you can do so that they will say yes.
Does an overdraft affect mortgage applications?
Most people these days have an overdraft on their bank accounts. Even when opening a bank account most banks will open the account with an agreed overdraft. So don’t panic!
Having an overdraft will not stop you from getting a mortgage. However, the way you use your overdraft may affect you getting a mortgage or the amount they will lend you.
So, how long does a mortgage application take to be approved? – Although in some circumstances this can take as little as 24 hours, you should expect to wait about 2 weeks on average while the mortgage lender gets the property surveyed and underwrites your mortgage application.
Over the agreed overdraft limit
If you are over your agreed overdraft this is very likely to affect you getting a mortgage as it is a major factor that a bank or building society will take into consideration when deciding whether to offer you one. When you get a mortgage, you are asking a lender to lend you a considerable amount of money. If you are going over your overdraft you are telling the financial world that you are more than likely struggling financially and therefore most banks and building societies are likely to turn you down.
Amount of overdraft
This will make a big difference on any decision made by the lender. If you have a standard £100 overdraft given with the bank account on opening this will have no affect on you getting a mortgage as long as you are not going over your overdraft limit.
If you have a larger overdraft for example of £5,000, lenders will look at the way you are using your overdraft on a monthly basis in much greater detail. If you are using it each month and you are close to your limit this will worry lenders and may cause you problems.
An overdraft can reduce the amount you can borrow
If you are in your overdraft each month and the lender is still willing to offer you a mortgage, how this sits with your credit profile may still affect you. Lots of lenders may take the overdraft as a regular credit commitment and therefore it could reduce the amount they are willing to lend.
Recent increase in overdraft
If you have recently increased your overdraft, lenders will assume that you may have had recent financial problems and this is the reason for increasing the overdraft.
Not using your overdraft
If you have an overdraft which you are not using, most banks and building societies will not take it into consideration. There is an exception to this though! If you had a large overdraft such as over £5,000, lenders may take this into consideration as it is £5,000 you could go and spend tomorrow. If you have no intention of using this overdraft it would be advisable to reduce it to a lower limit.
Each lender will take a different view on bank account overdrafts
Each bank and building society will have a different view on overdrafts. This will depend on the size of mortgage you require and the loan-to-value. The higher the mortgage and the higher the loan-to-value, the more the overdraft could affect your borrowing.
How many months bank statements will lenders look at?
Each bank and building society will vary on how many months bank statements they will need to see. The average amount of months looked at is 3 months however quite often it can be as many as 6 months bank statements that they ask for. If there are two people who are due to be named on the mortgage, they will want to look at both mortgage applicants bank statements.
What will lenders look for on my bank statement?
The reason lenders want to see your bank statement is to check that the amount on your payslip matches the amount you get paid. It is proof of your earnings. The lender’s underwriter will now be able to see all your financial transactions for the last 3 months, therefore be ready to explain any regular payments and also any payments that could cause the lender concern.
Stop worrying and take action!
The maximum amount of monthly bank statements a lender will look at is 6 months, therefore the worst case scenario is that it will take 6 months to get your bank account and overdraft in order. Get out of your overdraft and then reduce the overdraft to a lower level.
I need to sort a mortgage quick
If you have been deep into your overdraft or have a large overdraft but need to get a mortgage sorted out sooner rather than later, don’t panic!
With over a hundred different banks and building societies and with over 14,000 different mortgages available there will be a lender and mortgage for you.
The solution will be to get a whole-of-market mortgage broker to help you. A mortgage broker will have experience with all the different banks and building societies and therefore will be able to find a lender that will be happy with your financial profile.
How to find a whole-of-market mortgage broker
The best way to find a whole-of-market mortgage broker is to carry out a Google search.
Google – Whole of market no fee mortgage broker This will provide you with a list of mortgage brokers near to you that will be able to search the whole market to find you the best bank or building society. By searching NO FEE mortgage broker, you will have the added advantage of finding a mortgage broker that does not charge for their services as they get paid by the different lenders.
The answers always… YesCanDo
Here at YesCanDo we are a whole-of-market no-fee mortgage adviser. Being the south coast’s largest mortgage broker, we have a team of very experienced mortgage advisers and managers. We are on hand to firstly help you find a mortgage lender that will accept you and secondly help you through every step of the way from arranging a survey, talking to your estate agent and solicitor and seeing the mortgage through to completion.
YesCanDo are a family-run mortgage brokers based in Havant near Portsmouth in Hampshire. We have offices where we can hold face-to-face meetings, or we are happy to help you by phone, WhatsApp or email.
So, pick up the phone or drop us an email and let’s see what we can do to help you!