The seven everyday habits that could affect your mortgage chances
What do they have in common to win an auction on eBay, buy a dress on credit and wager € 5 on your soccer team’s next game?
You may not realize it, but all of these could potentially affect your mortgage application, according to brokers.
When applying for a home loan, you want to make sure that your bank statement reflects you in the best possible light.
Borrowers want their bank statements to reflect them in the best possible light
While there are many known steps you can take to increase your chances of getting approval – such as building your creditworthiness, reducing debt, and making sure you are on the electoral roll – there are a number of them too seemingly more minor factors buyers may want to keep track of.
Banks and building societies will likely scrutinize your finances with a fine comb – but this is especially true right now, as many people’s incomes on paper are more precarious due to the pandemic and some lenders have tightened their affordability criteria.
“There is undoubtedly more scrutiny of applicants’ income and expenses, especially in a pandemic world,” said Mark Harris, general manager of private clients at SPF mortgage broker.
Although mortgages are being taken out at record levels due to the increasing demand for moving, getting through the muster is still a challenge for many.
According to Aldermore Bank’s first-time buyer index, almost half of first-time buyers were turned down for a mortgage in 2020.
It is clear that the lenders will check your regular income and your main expenses on things like credit cards, bills, and insurance.
But given the increased control over borrowers right now, what other types of expenses should they be aware of when making mortgage applications?
From sports betting to a Spotify subscription, we asked mortgage industry experts about the lesser-known spending habits that might raise lenders’ eyebrows – and the risk they actually pose to a mortgage application.
What are the chances? Lenders may disapprove of sports betting if it is not within their means
1. Sports betting
Mortgage lenders have a policy about what to accept in gambling transactions. This depends on which company you are applying for a loan from.
Depending on how many times you place a bet and how much you spend, it could cause them to reject you.
“For the most part, gambling and mortgages don’t go well together,” says Paul Coss, co-founder of mortgage broker Haysto.
“If, when taking out a mortgage, a bank or building society finds that you are an active player, it could violate your application and result in a rejection.”
But how much is too much? It’s safe to say that if your betting career spans an annual Grand National flutter then you don’t need to worry.
“Horror stories of applicants denied mortgages on an annual £ 5 bet are far from reality, so borrowers shouldn’t get too upset about the weird flutter of the past,” said Mark Harris, chief executive officer of mortgage broker SPF Private customers.
Coss adds that even a weekly wager of € 10 on your soccer team or an occasional day at the races would be acceptable as long as that’s within your means – but those “excessive and multiple transactions” that made up a significant portion of your earnings monthly income would be cause for concern.
Where the money comes from is also important. “Lenders may also consider if you’ve been up significantly recently, especially if it means eating up your savings or overdrafts,” added Coss.
Taking out a lot of cash could lead mortgage lenders to suspect you of illegal activity
2. Withdraw lots of money
Withdrawing large amounts of money from ATMs is seen as a red flag by lenders as they don’t have a paper trail to see what the money has been spent on.
Most illegal purchases are paid for in cash. Even if you use the money on something completely legal, lenders can come to unsavory conclusions – especially if you withdraw large amounts on a regular basis.
Jonathan Harris, chief executive of mortgage broker Forensic Property Finance, said, “Frequent cash withdrawals can ring alarm bells for lenders. I had a client who withdrew hundreds of pounds every Saturday morning early in the morning and was suspected of being ladies of the night.
“Another customer was withdrawing large sums of money and the lender was concerned that it would pay its employees with cash and encourage tax avoidance for earned income.”
3. Using PayPal
Similar to using cash, paying for things through PayPal obscures the identity of the person or company you are sending money to.
This, in turn, could lead mortgage lenders to suspect that a potential borrower is spending their money improperly.
While PayPal is used for many legitimate transactions – for example, as the primary payment method for the online auction site eBay – it can also be used to hide expenses for things like problem gambling.
Alex Winn, mortgage expert at online broker Habito, says: ‘Many gambling companies offer customers the option to pay via PayPal. As a result, frequent PayPal transactions can raise requests from lenders to view full bank statements, even though they may only be transactions from other websites – eBay, for example. ‘
If you buy now and pay later, loan companies can take action against you when you apply for a mortgage
4. Pay later with Buy Now
The logos of companies like Klarna, Laybuy and Clearpay are becoming more and more common when shopping online.
They allow customers to spread the cost of purchases over a few weeks interest-free when checking out online, and are particularly common on fashion and interior websites.
Matt Coulson, director of mortgage broker Heron Financial, warns that their use could be of concern in the eyes of mortgage lenders.
“A lot of people won’t realize that ‘buy now, pay later’ systems like Klarna can affect your lending ability,” he says.
“The zero percent interest rate is tempting, but lenders might take it as an indication that you don’t have the money to pay for consumer goods up front with little expense, and so they call it” necessary “rather than” nice too. ” have “treat..
“Try to limit the use of these where you can so lenders have less reason to say no.”
It’s best not to have too much fun sending money to friends and family online
5. ‘Funny’ payment references
If you’re paying back a friend for a round at the pub or transferring your share of the household bills to your roommate or other half, filling out the description field in your online bank with a joke payments reference can seem harmlessly fun.
However, experts say if you are planning to apply for a mortgage anytime soon, you should probably steer clear – especially if the joke is a bit risky.
“We wouldn’t recommend references for joke payments because they usually raise questions,” says Winn. “They might look fraudulent or look like an ongoing commitment that you haven’t shared with your broker.
‘We have seen applicants with x-rated or illegal payment references on their bank statements, most of which are ignored. However, if it is a regular payment with a questionable reference, the mortgage insurer is likely to make more inquiries with the lender. ‘
6. Subscriptions to gyms, Netflix and Spotify
They may be only a small part of your individual monthly budget, but mortgage experts urge buyers to keep considering the cumulative cost of any subscription services they have.
This can include anything from streaming services like Netflix and Spotify to gym membership to kits for meal delivery or online gaming accounts.
Bruce Burkitt, founder and CEO of Property Experts, a real estate buyer, says, “Your regular monthly expenses, such as a Netflix, Spotify subscription, or even gym membership expenses, are held against yours despite their relatively low monthly values Ability to afford the mortgage payments.
“Ultimately, when securing a mortgage, the buyer must be careful about their monthly expenses, whatever they may be.”
7. Payday loan repayment
Evidence that money is borrowed and paid back on time is generally a good thing when it comes to mortgage applications.
However, this is not the case with payday loans. These can still be offset against you when applying for a mortgage, even if they have been repaid in full and on time.
“I saw a prospective buyer being denied a mortgage for using a payday loan company even though he’d paid it back on time.
“It was a red flag for the lender, so they rejected his application and the apartment was put back on the market,” says Burkitt.
“It indicates to lenders that you’ve had periods when you’ve been beyond your means.”
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