Will My Overdraft Affect Getting a Mortgage?
Most of us have overdrafts, and people do use them occasionally, but how do they affect the mortgage? Can you get a mortgage with an overdraft? It’s probably important to understand how it works, because it will affect you.
Unfortunately, the rules that apply for mortgages tend to be quite strict when it comes to finance. Providers need guarantees that you can pay back what you owe as part of your mortgage. Therefore, if there is evidence that you have been disorganised or careless with your financial situation, many providers will be unwilling to give you good deals.
Your overdraft can affect the final decision of a provider when they are thinking about awarding your mortgage. There are lots of providers who may choose to ignore a significant overdraft if it isn’t used frequently. However, there are other providers who see this as simply potential for massive borrowing, and will not give you a mortgage for that reason.
There are a couple of different reasons why a provider may turn you down based on your overdraft, and if you find out that you have been turned down, you should ask why this is the case.
Something else that you should consider is that there is a big difference to providers between just having an overdraft and using it all the time.
If you had a £2000 overdraft but barely used it, then your provider might be willing to ignore it. However, if you have a £2000 overdraft and use it constantly, this may not be a good idea and would make a provider less inclined to give you a mortgage.
The reasoning for this is simple.
If you rely on your overdraft to live, then it suggests to a lender that you are living beyond what you can afford, and you will struggle to pay back a mortgage. But it might be reassuring to know that even if you do struggle to secure a mortgage, there are some brokers that give plans for people who have financial aid.
Just because you exceed the overdraft, that doesn’t mean that it’s the end of the road for you. If the situation was a one-off occurrence, then you’re probably likely to get approved anyway. However, your provider may still request to see three months of bank statements and access to your financial records to confirm that you are going to be able to pay back your mortgage before they give it to you.
Ultimately, your overdraft is just one of many potential red flags that a provider may spot as they consider you for a mortgage. Other red flags include too many credit applications, not earning enough, a small deposit, poor credit history, too much debt, or payday loans.