What do winning an auction on eBay, buying a dress on credit and putting £5 on your football team’s next fixture have in common?
You might not realise it, but these could all potentially affect your mortgage application according to brokers.
If you’re about to apply for a home loan, you want to make sure 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 plenty of well-known measures you can take to boost your chances of being approved – building up your credit score, reducing debts and making sure you’re on the electoral roll, for example – there are also a host of seemingly more minor factors that buyers might want to keep an eye on.
Banks and building societies will likely go over your finances with a fine-tooth comb – but this is particularly true at the moment, as many people’s incomes are, on paper, more precarious thanks to the pandemic and some lenders have tightened their affordability criteria.
‘There is undoubtedly greater scrutiny of applicant income and expenditure, particularly in a pandemic world,’ says Mark Harris, chief executive of mortgage broker SPF private clients.
Although mortgages are going through at record levels because of a surge in demand for moving home, many are still finding it a challenge to pass muster.
According to Aldermore bank’s first time buyer Index, nearly half of first-time buyers were rejected for a mortgage in 2020.
Clearly, lenders will look at your regular income and your major outgoings on things like credit cards, bills and insurance.
But given this increased scrutiny borrowers are under at the moment, what other types of spending should they be mindful of when making mortgage applications?
From sports betting to a Spotify subscription, we asked mortgage industry experts about the lesser-known spending habits that could raise lenders’ eyebrows – and how much of a risk they really pose to a mortgage application.
What are the odds? Lenders could frown upon sports betting if it is not within your means
1. Sports betting
Mortgage lenders will have a policy on what they will accept when it comes to gambling transactions, and this will differ depending on which company you are applying for a loan with.
Depending on how often you place a bet and how much you spend, it could lead them to turn you down.
‘Largely speaking, gambling and mortgages do not mix well,’ says Paul Coss, co-founder of mortgage broker Haysto.
‘When taking out a mortgage, if a bank or building society sees that you’re an active gambler, this could go against your application and result in rejection.’
But how much is too much? It’s safe to say that if your betting career extends to an annual flutter on the Grand National, you don’t need to worry.
‘Scare stories of applicants being denied mortgages because of an annual £5 bet are far from the reality, so borrowers shouldn’t get too worked up about the odd flutter in the past,’ says Mark Harris, chief executive of mortgage broker SPF Private Clients.
Coss adds that even a weekly £10 bet on your football team or the occasional day at the races would be acceptable, as long as it was well within your means – but that ‘excessive and multiple transactions’ that accounted for a significant chunk of your monthly income would cause concern.
Where the money is coming from also matters. ‘Lenders may also take into consideration if you’ve recently increased your activity significantly, especially if it means eating into your savings or overdraft,’ Coss adds.
Taking out lots of cash could prompt mortgage lenders to suspect you of illegal activities
2. Withdrawing lots of cash
Withdrawing lots of money from cash machines is seen as a red flag by lenders, because there is no paper trail for them to see what the money was spent on.
Most illegal purchases are paid for cash in hand, so even if you’re using the money for something perfectly legal, lenders might jump to unsavoury conclusions – particularly if you regularly take out large sums.
Jonathan Harris, managing director of mortgage broker Forensic Property Finance, says: ‘Frequent cash withdrawals can ring alarm bells with lenders – I had one client who was withdrawing hundreds of pounds in the early hours every Saturday morning who was suspected of procuring ladies of the night.
‘Another client was withdrawing large sums of cash and the lender was concerned that he was paying his workers cash-in-hand, and promoting tax avoidance on earned income.’
3. Using PayPal
Similar to using cash, paying for things via Paypal obscures the identity of the person or company you are sending money to.
Again, this could lead mortgage lenders to suspect a potential borrower of spending their money unwisely.
While Paypal is used for plenty of legitimate transactions – such as being the primary payment method for the online auction site eBay – it can also be used as a way to conceal spending on things such as problem gambling.
Alex Winn, mortgage expert at online broker Habito, says: ‘Many gambling companies offer customers the ability to pay via Paypal, so frequent Paypal transactions can raise queries from lenders to see the full statements, even though these may just be transactions from other sites – for example, eBay.’
Using buy now, pay later credit companies might go against you when applying for a mortgage
4. Using buy now, pay later
The logos of companies such as Klarna, Laybuy and Clearpay are an increasingly common sight when shopping online.
They allow customers to spread the cost of purchases over a few weeks interest-free when they are checking out online, and are particularly prevalent on fashion and interiors websites.
Matt Coulson, director at mortgage broker Heron Financial, warns that using them could be a cause for concern in the eyes of mortgage lenders.
‘Plenty of people won’t realise that “buy now, pay later” systems like Klarna could impact your lending capability,’ he says.
‘The 0 per cent interest is tempting, but lenders could take this as an indication that you don’t have the money to pay for low-outlay consumer goods upfront and so treat as a “necessary” rather than a “nice to have”.
‘Try to limit the use of these where you can, so that lenders have less reason to say no.’
It’s best not to have too much fun when transferring money to friends and family online
5. ‘Funny’ payment references
When you’re paying a friend back for a round in the pub or transferring your share of the household bills to your housemate or other half, filling out the description field on your online bank with a joke payment reference can seem like a bit of harmless fun.
However, experts say that if you’re planning to apply for a mortgage any time soon you should probably steer clear – especially if the joke is a bit risque.
‘We wouldn’t recommend joke payment references at all, as these normally raise queries,’ says Winn. ‘They could look fraudulent or like a commitment that’s on-going that you’ve not disclosed to your broker.
‘We’ve seen applicants with x-rated or illegal payment references on their bank statements, most of which are disregarded, but if it’s a regular payment with a questionable reference, it’s likely to raise more queries by the mortgage underwriter at the lender.’
6. Gym, Netflix and Spotify subscriptions
They might only be a small part of your monthly budget individually, but mortgage experts urge buyers to still be mindful of the cumulative cost of any subscription services they have.
This could include anything from streaming services such as Netflix and Spotify, gym memberships, meal delivery kits or online gaming accounts.
Bruce Burkitt, founder and managing director at property buyers Property Experts, says: ‘Your regular monthly outgoings for example a Netflix, Spotify subscription or even how much you spend on a gym membership, despite their relatively low monthly values, will be held against your ability to afford the mortgage payments.
‘Ultimately, when looking at securing a mortgage offer, the buyer needs to be wary of their monthly outgoings, whatever they may be.’
7. Repaid payday loans
Evidence of borrowing money and paying it back on time is generally a good thing when it comes to mortgage applications.
However, that is not the case when it comes to payday loans. These can still count against you on a mortgage application, even if they were repaid in full and on time.
‘I have seen a prospective buyer being denied a mortgage due to the fact he had used a payday loan company, despite the fact he had paid it off in time.
‘It was a red flag for the lender, so they rejected his application and the apartment was put back onto the market,’ says Burkitt.
‘It flags to lenders that you have had periods where you have been living beyond your means.’
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