Mortgage Checks: How Far Back Do Lenders Look?

When applying for a mortgage, lenders will look at your credit score to assess your financial history and determine whether you are a reliable borrower. This process involves a hard credit check, which can impact your credit score. Lenders will typically look at your credit history from the last two to seven years, with a focus on the last 24 months. They will examine your bank statements, spending and credit habits, and any outstanding debts to ensure you can afford the monthly mortgage payments. Therefore, it is important to maintain a good credit history and address any issues before applying for a mortgage.

Credit checks go back six years

In the UK, credit checks for mortgages typically go back six years, although there are some exceptions. This means that lenders will examine your spending and credit habits, bank statements, and credit reports from the last six years to assess your financial behaviour and creditworthiness. They will be looking for careful money management, regular and timely credit card repayments, and responsible financial behaviour.

During the credit check, lenders will look for any adverse information on your credit report, such as late or missed payments, bounced payments, non-sufficient funds fees, or overdraft charges. These can be seen as signs of financial mismanagement and may require an explanation from you. It's important to note that adverse items on your credit report are typically reported for seven years, and by law, they must be deleted from your report after this period.

To improve your chances of mortgage approval, it's recommended to demonstrate financial responsibility by setting up direct debit payments for all your bills and regularly checking your bank statements. Lenders also look favourably upon applicants who can demonstrate an ability to save and manage their money effectively. Additionally, making a larger deposit can help lower your LTV and make you a less risky borrower.

While the focus is usually on the most recent 24 months, with a higher emphasis on the last six years, credit checks can sometimes uncover issues that are almost a decade old. These older issues may still be considered by lenders and could impact your mortgage application. Therefore, it's essential to proactively monitor your credit history and address any negative items before applying for a mortgage.

Lenders look at your credit score

Lenders will look at your credit score when you apply for a mortgage. This is to gauge how well you have managed your finances in the past and whether you are likely to be a reliable borrower. They will examine your spending and credit habits, including bank statements, to determine your financial behaviour. This will usually go back six years, although some lenders may only look back four years, and others may go back seven.

Lenders will look at your credit report, which includes your credit cards, loans, and other debt accounts. They will also look at your bank statements to verify the amount you have saved and the source of that money. This includes pay stubs, gift letters, tax returns, and bank statements. It is important to be able to explain any large deposits, as lenders will be suspicious of any dishonest or suspicious activity.

Lenders will also look at your payment history, outstanding debts, and overall credit usage rate. They will scrutinize how you have handled your debts, whether you have failed to make payments on time, or not made any payments at all. This can indicate financial mismanagement and irresponsibility. Therefore, it is important to maintain good credit records over an extended period.

You can improve your chances of approval by demonstrating your ability to save. Lenders want to see that you can manage your money responsibly, so evidence of regular savings can help strengthen your application. Making a larger deposit can also help to lower your LTV, making you a less risky borrower and reducing the amount you will pay overall in interest.

Bank statements are reviewed

Lenders will typically ask to see your bank statements for the last 3 months as part of your mortgage application. They do this to assess your financial health and ensure you can afford the mortgage repayments. They will be looking for regular outgoings, sources of income, and any potential red flags, such as missed direct debits or regular gambling activity. It is, therefore, a good idea to review your bank statements before applying for a mortgage and address any issues or inconsistencies.

Lenders will scrutinize your bank statements for any signs of financial irresponsibility or instability. They may view any large deposits or unusual transactions as a potential risk and may ask you to explain these. Large deposits, especially, may be seen as an attempt to artificially boost your financial position and must be justifiable. Regular deposits, such as your salary, will also be checked to ensure they are consistent and likely to continue. Any recent overdrafts or returned direct debits due to lack of funds will also be red flags for lenders.

Mortgage lenders will also be interested in your regular outgoings. They will look at your bank statements to see if you have any regular commitments, such as loan repayments, child maintenance, or regular subscriptions. They will add these to your expected mortgage repayments to calculate your total monthly outgoings. Lenders will also take into account any regular income, such as child benefit or maintenance payments received, to calculate your overall financial position. They may also consider any savings or investments you have and how these are managed.

It is important to remember that lenders will often use a combination of automated and manual checks when reviewing your bank statements. Automated checks may flag any unusual activity or discrepancies, which a manual review will then investigate further. Lenders will also often request bank statements directly from your bank to ensure their authenticity and a true representation of your finances.

Lenders check your spending habits

When it comes to applying for a mortgage, lenders will typically perform a thorough check of your financial history to assess your spending habits and overall creditworthiness. This process is crucial for them to determine whether you are a low-risk borrower who can be trusted to repay the loan. Here's a detailed breakdown of what this entails:

Lenders will request your bank statements, typically covering a period of 2 to 3 months, to scrutinize your spending patterns. They are interested in seeing your income, including salary, bonuses, and any other sources of income

You must prove your ability to pay

When applying for a mortgage, you will need to prove your ability to pay. This means demonstrating your financial health and credibility to the lender. You can do this by providing the necessary documentation to back up your income and outgoings. This includes payslips, bank statements, utility bills, and any other expenses or sources of income that need to be considered.

If you are employed, you will likely need to provide recent payslips (usually covering the last three months), a P60, and bank statements. This allows mortgage companies to calculate how much of your pay will go towards your monthly mortgage repayments. Lenders will also want to see that you have a steady income to repay the loan.

For self-employed applicants, proving income can be more challenging. Lenders will typically request two or more years of certified accounts, an SA302 tax calculation with a tax year overview, and bank statements. An SA302 is a tax calculation showing your income reported to HMRC, and it is the easiest way for a lender to verify your income. It's important to note that faking an SA302 or payslips is illegal and can have serious consequences.

In addition to income verification, lenders will also assess your spending habits and recurring expenses. They will look for consistent bill payments, existing debts, and overall financial commitments. This includes checking for any missed payments, overdraft charges, or bounced payments, as these can be seen as signs of financial mismanagement. Lenders may also consider your ability to save, as this demonstrates financial responsibility and strengthens your application.

To summarise, proving your ability to pay involves providing comprehensive documentation of your income and expenses, demonstrating steady income and responsible financial management, and, if applicable, providing additional proof of income through tax calculations for self-employed individuals.

Frequently asked questions