If you are applying for a mortgage then the chances are the lender will want to see your bank statements, but why are these relevant?
Affordability
Bank statements normally display the monthly income and outgoings of a household. The lender can therefore get a clear picture of the net income to service their loan. There could of course be items that you pay cash for example child care costs, or indeed annually such as insurance but nevertheless the bank statement will provide evidence for the bulk of the transactions.
Income
For employed applicants the lender would expect to see a salary credit entry with the employer’s name stated. This will then be cross-referenced with other documents they may request to support your mortgage application such as payslips and P60s. For self-employed applicants the lender will be looking for regular credits which suggest affordability of the mortgage is sustainable.
The bank statement will also show if you are receiving rent from any properties you let. If you are using a management agency the lower ‘net’ rental figure will be shown (i.e. after they have deducted their charges), which may be the figure the lender will use to determine whether the property is self-financing.
Conduct
The lender will go through the list of transactions and look closely for any bounced direct debits or standing orders. Income in (opening balance) compared to the expenditure (closing balance) to see if you are living within your means and are in the position to take on the added commitment of a mortgage.
Lifestyle
The lender will also evaluate whether your social life, travel or holidaying is above average and whether you have an excessive gambling habit.
Overdraft
Most lenders will still lend if you enter an ‘agreed’ overdraft facility provided this can be evidenced (most bank statements specify the overdraft amount on them if not a letter from the bank would suffice). Lenders will have greater understanding if this is a seasonal event such as Christmas and would be less tolerant if this a continual feature as it gives the impression you are living beyond your means. Being in an overdraft will also have a bearing on your credit score rating (computerised point system designed to rate your chances of repaying credit) which depending on the lender may result in your mortgage application being declined.
There are some lenders that do not have a ‘credit scoring’ policy preferring to let an underwriter make a decision and also a few lenders that would entertain you exceeding the overdraft limit. If you have had experienced these difficulties an expert mortgage broker such as Niche Advice should be able to guide you further.
Credit commitments
The lender will use the bank statements to see the magnitude of your debt (such as personal loans, hire purchase, secured loans, credit cards, charge cards etc) and assess the payment conduct. It is common for applicants to understate their debt position on a mortgage application form only to be found out when the bank statements have been provided. Non-disclosure is frowned upon, and can lead to the mortgage application being rejected, so it is therefore imperative that your bank statements are checked thoroughly and credit commitments reflected properly in the form.
Other commitments
Student loans, maintenance payments, child care, education fees, social memberships, rent, insurances, pension contributions, property service charges can all be laid bare and factored in by the lender in their affordability assessment.
Large or regular credits
If there is a large deposit in your account (circa £1,000 or more), and this is clearly not related to your job, then the lender is likely to any for an explanation. Why? Well they have a duty of care to the Money Laundering Regulations and as such need to account for the origination of ALL the deposit proceeds used to purchase the property. The same steps would apply it there a series of smaller undeterminable credits.
Proof of address
The lender will normally look for utility bills, driving licences and at the voters roll to evidence where you live, however, the bank statement can provide another source of verification to give them additional comfort.
What format do the bank statements need to be supplied in?
This is often an area of documentation that can lead to frustration. Lenders’ are extremely picky on the format of the bank statements.
The ‘old fashioned’ paper statements are normally preferred by lenders as they can quickly tell whether they are the genuine article. Applicants may understandably have a reluctance to part with original documents but the lender should be able to return these once the mortgage process has been completed.
Many of the Lenders are of course banks themselves and appreciate that times have moved on to an online paperless world, and as such they will accept statements produced directly from your bank’s website provided they are in a prescribed format. Here are the key format guidelines for the statements below:
- They must be produced via an official printing option. Screen shots are NOT acceptable.
- They need to contain the bank’s website address on each page. The address must start with the prefix ‘https’ to confirm that it is an official and secure site.
- The statement must show the bank’s name, your name and full account number. If the account number only shows the last four digits with the others asterisked then a further document must be provided showing the full account number (i.e. paper statement, cheque book etc).
- If the statement only shows dates where transactions have taken place then the print out should also show a date range. For example, if you are trying to evidence 1st September to 30th September 2015, yet the only transaction for the month was on 14th September (i.e. only one entry) then the date range must clearly be displayed on the print.
- If you are unable to print the statements online the bank branch may be able to help. If they do and the https address is not displayed a branch stamp on each page is normally acceptable.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Finance Brokers In London. His role is very much focused on Property financing both on residential and commercial lines.
You can call Payam on 020 7993 2044 or alternatively complete the enquiry form so he can personally get in touch with you.
Niche Advice is not tied to any bank, building society, estate agent or insurer and offers Independent Mortgage and Insurance advice.