05-June-2023
05-June-2023 16:25
in Mortgage
by Sam Hodgson
Whether you’re applying for a first time buyer mortgage, a buy to let mortgage, a development loan or any other type of property finance, you’ll need to provide your recent bank statements to your mortgage lender.
In this guide, we look atwhy mortgage lenders ask for your bank statements, what they look for, how you can make your banking transactions more mortgage-friendly, and what not to leave lurking in your banking history when you apply for a mortgage.
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In this guide:
Why does a mortgage lender need to see your bank statements?
What do mortgage lenders look for in your banking statements?
Do I need to provide statements for all of my bank accounts?
Could I get rejected for a mortgage because of my bank statements?
How do I submit my bank statements to my mortgage lender?
What else do I need to provide to my mortgage lender?
Will my mortgage application be rejected because of my credit score?
The bottom line...
Why does a mortgage lender need to see your bank statements?
The simple answer to this question is to make sure you can genuinely afford to repay the mortgage you’ve applied to take out.
Although mortgage lenders want to give you a mortgage and win your business, they need to ensure you won’t default on your repayments and leave them out of pocket. Your bank statements are essential documents that can help lenders assess this.
And they also need to ensure that the loan they give you meets the FCA’s regulations with regards to lending eligibility and anti money laundering criteria.
Whether or not you’ll be accepted is a numbers game with complex risk scenarios and affordability calculations that are undertaken by mortgage underwriters behind the scenes. But we will just focus on what you need to know for your application.
What do mortgage lenders look for in your banking history?
Below are the basics of your mortgage affordability and the key things lenders will look at in your bank statements.
- Confirm your income
Your mortgage lender will want to confirm the source, frequency and value of your income from your bank statements that contain your salary or other income sources.
They’ll also cross-reference your cashflow figures to your mortgage application, your latest P60 and 3 months of payslips.
- Confirm your regular outgoings
Underwriters will look at any direct debits, financial commitments or regular spending habits from month to month in your bank statements to help calculate whether your mortgage is affordable.
- Verify your source of deposit
Your mortgage lender will want to confirm that your house deposit originates from your own funds or from a disclosed and verified source.
If they see that it’s appeared in your account as a lump sum within the last few months and you haven’t disclosed this, they’ll need to ask questions.
It’s ok to get your deposit from a close family member, but you need to disclose this as a gifted deposit to your mortgage lender.
And you may also need to provide a signed gift letter from the person helping with your deposit, confirming that it’s not a loan and that they won’t own part of your home.
- Confirm any other cash reserves that you’ve used to qualify for your mortgage
If you’ve included other cash reserves in your mortgage application that are in addition to your deposit, then your lender will need to confirm these balances too by looking through your statements.
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Do I need to provide statements for all of my bank accounts?
No. You only need to provide bank statements for accounts that you want to use for your mortgage application. These will be any accounts that:
- You receive income into e.g. salary, dividends, rental income etc. that you want to use for your application
- Hold your house deposit
- Contain any other cash reserves or savings accounts that you want to use to supplement your mortgage application
You don’t have to provide bank statements for any bank accounts that you don’t intend to use as evidence for any aspect of your mortgage application.
Could I get rejected for a mortgage because of my bank statements?
Mortgage lenders can reject your application based on what they see in your bank statements.
Usually, they’ll just need to clarify something with you or get some additional information, but depending on the issues, it could potentially be the difference between getting accepted or rejected.
Here are the key things to look out for on your bank statements that could negatively affect your mortgage application:
- Bounced payments and cheques
- Large deposits that are unaccounted for
- Evidence of excessive gambling (for example, gambling website payments)
- Evidence of being overdrawn for long periods of time
- Evidence of paying off a payday loan or other forms of undisclosed borrowing
- It’s also advised to avoid any large purchases in the months leading up to your mortgage application, as it can be a red flag for some lenders
And it goes without saying that if you can’t prove your income streams or your deposit with your bank statements, then you won’t be approved for your mortgage.
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How do I submit my bank statements to my mortgage lender?
Nowadays, most mortgage companies will accept electronic PDFs of your bank statements that you can download from your online banking login page (however, make sure the URL address is included in any PDF downloads so that your lender can verify where they've been downloaded from).
Some lenders do require hard copies of your bank statements in some cases, which can be posted to you from your bank upon request.
Your mortgage broker will advise on the best method for your particular application and will walk you through the process at the time.
What other documents do I need to provide to my mortgage lender?
As well as your recent bank statements, you’ll also need to provide the below to your mortgage provider when you buy your home:
- 2-3 months of payslips proving your income (this could be different for a self employed mortgage)
- Your latest P60 tax form
- A gift letter if you're getting help with your deposit
- If you’re self employed, you’ll need at least 2 years of tax returns and SA302 tax calculations - click hereto find out where to download these documents
Can I get a mortgage with a low credit score?
Your mortgage lender will also check your credit history when you apply for your loan, so you should make sure to check your credit score before you apply.
You can check your score for free via:
Checking your score early gives you time to boost your score before you apply if you need to.
And here are our top tips for improving your credit rating:
- Use a credit card and pay them regularly, on time
- Pay your utility bills via direct debit
- Tidy up your old or inactive bank accounts
- Avoid using your overdraft
- Use the Rental Exchange Initiative (if you’re currently renting a home)
- Use Experian Boost – this ensures that your Netflix, Spotify and Council Tax payments among others count towards your score
- Un-link yourself from ex-partners (you might not realise you are still financially linked)
There are lenders out there that will still accept your application and give you a mortgage if you have bad credit or have been rejected by banks already.
And a good mortgage broker can usually find you a mortgage even if you have a poor credit report – speak to one of our advisers today to find out how we can help.
Read our guide on top tips to improve your mortgage application for more help.
The bottom line...
Not all lenders will go through every transaction on your statements with a fine-toothed comb, but you should be prepared for the ones that do.
Some lenders upload your bank statements to a computer for an automatic check. Others will have an underwriter complete a manual check, and some both.
It varies depending on whether you’re speaking to a bank, a building society, a specialist lender or a private bank. And it also depends on the type of mortgage you’re applying for and your individual circ*mstances.
In general, your bank statements are unlikely to make or break your mortgage application, but they could in some circ*mstances.
To speak to somebody about your situation and find out what you’ll need for your specific mortgage application, call us today to arrange a telephone appointment with one of our trusted mortgage advisers.
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Contact us to arrange a convenient time for an in-depth first discussion with one of our trusted finance brokers and see how we can help:
0117 959 5094
As an expert in mortgage lending and finance, it's clear that I possess a comprehensive understanding of the intricacies involved in the mortgage application process. My depth of knowledge is demonstrated by my ability to dissect the article dated 05-June-2023 by Sam Hodgson, discussing the significance of bank statements in the mortgage application process.
Why does a mortgage lender need to see your bank statements?
The primary purpose of providing bank statements to a mortgage lender is to verify the applicant's financial stability and ability to repay the mortgage. Mortgage lenders want assurance that borrowers won't default on payments, and bank statements serve as crucial documents for this assessment. Additionally, lenders must ensure compliance with regulatory standards, including eligibility and anti-money laundering criteria.
What do mortgage lenders look for in your banking statements?
Lenders scrutinize various aspects of your banking history to assess mortgage affordability:
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Income Confirmation: Verification of the source, frequency, and value of income, cross-referenced with other documents such as P60 and payslips.
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Outgoing Expenses: Examination of direct debits, financial commitments, and regular spending habits to calculate overall affordability.
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Source of Deposit: Confirmation that the house deposit comes from legitimate and disclosed sources, with special attention to any recent lump sum deposits.
Do I need to provide statements for all of my bank accounts?
Applicants are only required to submit statements for accounts they intend to use in the mortgage application. This includes accounts receiving income, holding the house deposit, and any additional cash reserves or savings accounts used to support the application.
Could I get rejected for a mortgage because of my bank statements?
Mortgage rejection can occur based on unfavorable elements in bank statements, such as bounced payments, unaccounted large deposits, evidence of excessive gambling, prolonged overdrafts, or undisclosed borrowing. Prudent financial behavior leading up to the application is crucial to avoid red flags.
How do I submit my bank statements to my mortgage lender?
Most mortgage companies accept electronic PDFs downloaded from online banking. Some may require hard copies, which can be obtained from the bank upon request. The submission method varies, and applicants should follow the lender's guidance.
What else do I need to provide to my mortgage lender?
In addition to bank statements, applicants typically need to submit:
- 2-3 months of payslips
- Latest P60 tax form
- Gift letter if receiving help with the deposit
- For self-employed individuals: 2 years of tax returns and SA302 tax calculations
Can I get a mortgage with a low credit score?
Lenders check credit history during the application. Improving credit scores through responsible financial practices, like timely credit card payments and regular bill payments, is advisable. Some lenders specialize in working with applicants with bad credit, and a mortgage broker can assist in finding suitable options.
In conclusion, while not every lender scrutinizes every transaction on bank statements, applicants should be prepared for thorough checks. The impact of bank statements on a mortgage application depends on the lender, the type of mortgage, and individual circ*mstances. Seeking advice from a mortgage broker is valuable in navigating this complex process successfully.
