If you have already had an application for a mortgage rejected due to a bank overdraft, or you are waiting to apply to a lender and want to make sure you won’t be affected, our advisers can help.
We have an experienced panel of advisers who support UK residents with bad credit and niche mortgage applications every week, including people who have an overdraft.
It’s not at all unusual for a mortgage applicant to have an overdraft. More important to many of our panel lenders is how your overdraft and your account in general has been conducted. Many people use an overdraft on a regular or even a permanent basis, but this does not need to preclude anybody from successfully applying for a mortgage.
In this guide, we are going to answer some of the most common questions that people in your situation regularly ask, such as “will having an overdraft affect me applying for a mortgage?”
Does an overdraft affect a mortgage application?
The answer to this question is straightforward; NO a well conducted bank account, even if it is run with an overdraft will not stop you from getting a mortgage. The key point is whether or not you are regularly exceeding the overdraft limit set by your bank.
If you have regularly exceeded your authorised overdraft limit which has resulted in unpaid standing order or direct debit payments, then this could be a sign to a lender that you could have issues in properly managing your money.
Whilst an overdraft does lead to you paying extra fees it may sometime be cheaper than alternatives, such as short-term unsecured loans. On that basis it makes perfectly good sense to agree an overdraft limit with your bank, rather than taking out a more expensive short-term loan, using this facility and keeping to the terms should not affect your mortgage application.
In cases such as this, our advisers can help you to prepare your application with the appropriate financial explanations. They will then place it with the lenders in the UK mortgage market who are most likely to approve you.
Can you get a mortgage if you have an overdraft?
Yes, you can get a mortgage if you have an overdraft, the important part is to get the advice and guidance of a qualified mortgage professional who has the experience to understand the lending criteria of the vast array of mortgage lenders. Each lender will have their own criteria and conditions, and each will consider your application in a different way.
If you regularly use your facility in a consistent way, then many lenders will consider that you are managing your money in an acceptable manner, and it will not cause a problem with your mortgage application. What could be more of a challenge is if the amount of your overdraft is increasing month on month on month.
For example, if you are £500 overdrawn in January, £1000 overdrawn in February, and £ 1500 overdrawn in March, this could indicate to the lender that you are living beyond your means, or to put it another way, you spend more than you earn.
If this is the case, then you can certainly benefit from the guidance of a specialist mortgage adviser. The right adviser will give you the advice that you need in order to prepare your application.
This may involve you budgeting to ensure that your current overdraft can be reduced for the next couple of months. A bank account with a reducing overdraft is always more appealing to a lender than a bank account where the overdraft is getting bigger each month.
But let’s be honest, a huge number of people in the UK have existing overdrafts ranging from a small amount of say £100, up to thousands of pounds. This doesn’t mean that all of those people are poor credit risks or should have an application for a mortgage turned down.
With the right mortgage adviser, you will have the best chance of finding the right lender to suit your needs.
Authorised overdraft mortgage applications
During the application process the lender will ask to see proof of income, and many, although not all lenders will ask you to typically provide your last three months bank statements.
We have many lenders available who will not penalise you for having an authorised overdraft and will have little if any affect on your mortgage application. However, if you regularly exceed your overdraft limit, it can signal to the lender that you are unable to maintain all of your existing monthly financial commitments.
Even in this scenario we can put you in touch with an adviser who can advise you on budgeting and help you to prepare a financial plan which will help you apply for a mortgage in the near future.
You may find that some lenders will have concerns if it appears you are using the facility each month to make ends meet, however we have lenders that won’t assume it’s a sign you won’t be able to afford mortgage repayments, provided the situation is not getting worse each month.
You may be worried that some might even view it as a signal that you have financial problems. Rest assured that provided you are maintaining your monthly commitments without increasing your overdraft, we have lenders who will view your application responsibly and sympathetically.
An occasional overdraft conducted within the bank’s limits can be virtually overlooked.
Unauthorised overdraft mortgage applications
If you have frequently gone over your limit, this counts as an unarranged or unauthorised overdraft.
In many cases, you are very likely to have incurred additional bank charges for doing so. This can often mean people get into a cycle of more fees and penalties and an ever worsening financial predicament.
If this is the case then it is unlikely that a High Street lender will offer you a mortgage, even if you were willing to immediately pay any penalty fees and clear your unauthorised overdraft. For these lenders, it may indicate that you could be a high-risk applicant who might struggle to maintain your finances on a regular basis and they may consider that you could therefore be unable to afford monthly mortgage repayments.
It’s not an easy cycle to come out of and can lead to you have having bad credit, a low credit score and ultimately a default or county court judgment.
In this case, it’s very likely that having this overdraft will affect your mortgage application and will mean that your best chance of success is talking to a regulated mortgage adviser specialising in bad credit mortgages.
Contact us now to speak with a friendly member of staff who will be able to take some brief details from you prior to putting you in touch with the regulated specialist mortgage adviser.
How to prepare for a mortgage if you have an overdraft
If you are considering applying for a mortgage either straight away or in the near future, it is really important that you budget properly and keep enough money in your account in the lead up to an application. This may mean holding back on discretionary spending whilst of course maintaining your financial commitments.
Ideally you should bee looking to reduce any overdraft in the period leading up to your application as this demonstrates to the potential lender that you are able to control your finances. You should take care not to exceed your overdraft limits during this period.
- Most lenders will want to see your last 3 months of bank statements, so this is the key period of time to get your account in order.
- Avoid increasing your overdraft facility and keep enough money in your account so you don’t go over it.
- If you are overdrawn, make sure that you maintain all of your commitments, standing orders and direct debit payments.
- It is important that you pay any overdraft and banking fees. If these are left unpaid the bank may have the right to charge you additional default fees and this could lead to a bad credit mark on your credit file which will make a mortgage application more difficult.
- Any unpaid fees and penalties could lead to a default of CCJ (county court judgement) which could be recorded on your credit score, this is a key part of a full mortgage application check.
- Try not to go over your overdraft limit as this is very likely to cause a delay in you being able to get the mortgage you require.
At the risk of repeating ourselves, talking with a regulated specialist adviser who understands the UK market, and who understands the process of dealing with a lender that will offer a mortgage to somebody with an overdraft, sometimes known as, overdraft mortgage lenders, you stand a much better chance of getting on to the property ladder.
Having access to an overdraft isn’t usually a problem but breaking the terms of that overdraft is – as previously stated it may suggest that you might not be managing your money very well.
Contact us now and we will put you in touch with the right regulated adviser who can help you get a mortgage with an overdraft.
Using an overdraft as a mortgage deposit
This is not advisable, for a number of reasons.
Firstly, overdrafts are designed to be used in the short term and a bank could withdraw your facility at short notice. If you do not have sufficient deposit, then an adviser will be able to suggest alternatives to you.
If you are considering taking out a loan to use as your deposit then you need to remember that a mortgage lender will take into account the repayments on your deposit loan before deciding how much you they are prepared to lend you. So, if your deposit loan had a monthly payment of £100 then a mortgage lender would take this into consideration and lend you less than if you had no loan at all.
What to do next
If you are regularly using your overdraft and want to apply for a mortgage now or in the near future, then start to think how you can prepare your finances and manage your expenditure.
Our advisers can help you even if you regularly use an overdraft facility. However, if you exceed the limits of your overdraft then you could be temporarily turned down for a mortgage. A specialist adviser will help you to understand what a mortgage lender requires so that you can get your finances ready and give yourself the best chance of success.
If you have already applied and been declined, don’t be disheartened.
We will put you in touch with an adviser who frequently helps people who have had a mortgage rejected due to overdraft issues, and we can put you in touch today.
