It can take years to finally save a large enough deposit to buy a home, so it may come as a shock to a first time buyer to be turned down for a mortgage just because of what they have spent their spare money on.
The Mortgage Market Review (MMR) that was conducted in 2014 and again this year, requires more stringent reviewing of a mortgage applicant’s affordability. One such requirement is to have a more stringent review of the affordability of what an applicant spends and flag high risk payments. There is no hiding from this as your mortgage lender reviews your bank statement for the last 6 to 12 months during your mortgage application. It is worth noting that the mortgage application process can be slightly different if you are a veteran. Consequently, any veteran reading this may wish to use a VA mortgage calculator before reading the rest of this article.
These are three ‘high risk’ payments that could jeopardise your mortgage application process so read on to find out what they are.
1. Online gambling
According to the Gambling Commission the Gross Gambling Yield for from Oct 2015 to Oct 2016 is 13.8bn. The market has grown by 40% since March 2014, with the most growth in the ‘Remote besting, bingo and casino’ sector (online gambling).
With such a growing audience and ease of use, online gamblers may find they may be gambling with more than just their stake as mortgage lenders consider this a high risk expenditure
Evidence of online gambling on your statement never helps your mortgage application and the more regular the payments, the dimmer the view most lenders will most likely take.
2. Unauthorised overdrafts
Many first time buyers have an authorised overdraft with their bank which allows them to withdraw more money from their bank account than is available. Exceeding this, or not agreeing with your bank before exceeding your bank balance will raise concern with your mortgage lender.
Your mortgage lender is looking for a clean track record that you are able to manage your finances. Allowing yourself to go overdrawn is an indication that you aren’t managing your money.
3. Pay day or high interest, short term, unsecured loans
The pay day loan market has shrunk since its introduction, mainly due to the price cap regulation in 2015, however there is still the draw of getting a short term loan to ‘tide you over until payday’.
With API’s greater than 1,000%, mortgage lenders will view the need to use such short term loans as a high risk as, much like an overdraft, it reflects on your ability to manage your finances.
Worried? Put time between you and the use of any of the above
The good news, if you’ve fallen foul of any of the above, is that time is the greatest healer regarding all credit matters. You are advised to wait at least 6 months after you’ve before you’ve made use of any of the above before making a mortgage application. You should regularly check your credit report too, to see how lenders are likely to judge you and to see if there are any errors that are unfairly affecting you.
If you have any high risk payments on your bank statement you will need to declare these to your mortgage broker as soon as you can.
Andrew Boast MAAT MIC
Co-founder of SAM Conveyancing