Mortgage History: How Far Back Do Lenders Scrutinize?

When applying for a mortgage, lenders will typically look at the previous six years of your credit history. They will also ask for bank statements dating back at least two to three months to assess your finances and spending habits. If you are self-employed, they may look at bank statements from the past 12–24 months to assess your average income over a longer period. Lenders will also consider other factors, such as your income, debt-to-income ratio, and address history.

Bank statements

Lenders will review your bank statements to verify your income and ensure that you have a steady income stream to afford the monthly mortgage payments. They will look for regular deposits, paychecks, or other sources of income, such as rental properties or investments. Lenders may also want to see proof of additional income, such as supplemental income or gift money for a down payment.

Expense analysis is another key aspect of reviewing bank statements. Lenders will examine your spending habits, recurring expenses, and overall financial commitments. They will look for consistent bill payments and existing debts. They will also look for large deposits or withdrawals. Bounced checks, insufficient funds, or overdrafts may be red flags indicating financial instability or poor money management.

Additionally, lenders will want to ensure that your financial situation aligns with the loan amount and terms requested. They will assess your cash reserves and closing costs to determine if you have the funds to cover the substantial costs associated with taking on a mortgage. Lenders will also verify that your assets are "sourced and seasoned," meaning they know the origin of your funds and that they have been in your account for a certain period, typically 60 to 90 days.

It is important to note that bank statements are just one part of the mortgage approval process. Your credit score, credit history, debts, and income will also play a significant role in determining your eligibility for a loan. Lenders use all these factors together to make an informed decision about your ability to handle the responsibility of a mortgage.

Credit history

When reviewing your credit history, lenders will look for careful money management, including regular and timely credit card repayments. They may also consider the severity of any bad credit issues and the time passed since they occurred. For example, bankruptcy may take additional time to rebuild your credit score. Improving your credit score can be achieved through careful money management, borrowing sensibly, repaying debts on time, and settling debts.

In addition to your credit history, lenders will typically ask for bank statements dating back at least three months, and sometimes up to six months or even 12-24 months if you are self-employed. They will analyse your income, expenses, spending habits, and debt to assess your financial health and credibility. Lenders will also verify that all funds in your accounts are "sourced and seasoned," meaning the source of each deposit is acceptable and verified, and the funds have been in the account long enough to show they are not a last-minute loan.

It is important to note that your credit history is not the only factor in a lender's decision. Even with bad credit, you may find a lender with criteria you meet, and a mortgage broker can assist you in finding the right lender for your situation.

Deposit amount

The deposit amount is the money you pay upfront when buying a house. The amount you need for a deposit depends on the property price and your budget. The more you can put down as a deposit, the less you need to borrow. A larger deposit also gives you a bigger share of equity in your home and can help you secure a lower interest rate.

The recommended minimum deposit size is 20% of the property value. However, it is possible to get a mortgage with a lower deposit of 10% or even 5%. The national UK average deposit for first-time buyers is around 20%, but this varies across the country, with higher deposits typically needed in the South, especially in and around London.

If you are purchasing a Buy-to-Let property, the deposit usually needs to be at least 25% of the property value. With a shared ownership mortgage, you only need to put down a deposit on the portion of the property that you are buying.

If you are unable to save for a deposit, there are other options available. You could consider a guarantor mortgage, where a family member uses their property or savings as security for the deposit. Alternatively, there are government schemes such as the Lifetime ISA or Help to Buy ISA, which can help you save towards your deposit. You can also use the equity from selling your current home as a deposit for a new one.

Lenders will want to see proof of your deposit and that you have sufficient funds to cover the costs of taking on a mortgage. They will typically ask for two months of recent bank statements to assess your income consistency, spending habits, and financial health. Any large deposits will need to be explained, and you may need to wait 60 days before applying for a mortgage to ensure the funds are considered 'seasoned'.

Property type

The type of property you are looking to buy will have a significant impact on the mortgage process and how far back lenders will look into your financial history. For example, if you are buying a residential property, such as a house or an apartment, lenders will typically review your financial history over the past two years. This includes your income, employment status, credit score, and any debts or liabilities you may have. Providing this information allows lenders to assess your ability to secure a mortgage and make regular repayments.

On the other hand, if you are looking to purchase a commercial property, such as an office building or retail space, the process may be more complex. Lenders may require a more extensive financial history, sometimes going back three to five years or more. They will want to see a detailed business plan, cash flow projections, and may even request financial forecasts to ensure you are capable of making the repayments. Commercial property loans often come with stricter requirements and higher interest rates than residential mortgages.

The property type can also refer to the physical structure and condition of the building. Lenders may be hesitant to provide a mortgage for a property that is considered unique or non-standard, such as a historic home or a property with structural issues. In these cases, the lender may require additional inspections, surveys, or specialist reports to assess the property's value and identify any potential risks. Older properties or those requiring significant repair may require a higher down payment, as lenders may view them as a riskier investment.

Furthermore, the property's location and zoning can also impact the mortgage process. Lenders may have specific requirements or restrictions for properties in certain areas. For instance, some lenders may be reluctant to provide mortgages for properties in flood zones or areas with high crime rates. Similarly, if you are considering purchasing a property in a rural or remote area, you may encounter a more limited number of lenders willing to offer a mortgage, as the property may be deemed less desirable or have a smaller potential market should it need to be repossessed and sold.

Finally, the property type can also encompass any unique features or amenities that could influence its value or desirability. For example, a property with a pool, solar panels, or extensive renovations may be perceived as a higher risk by certain lenders, as these features could potentially increase insurance or maintenance costs. Conversely, energy-efficient homes or those with desirable features such as a home office or smart technology may be viewed favorably, potentially resulting in more favorable mortgage terms or interest rates.

Age

When applying for a mortgage, lenders will consider your age to determine how close you are to retirement. Being close to retirement age may affect your affordability and the type of product that is suitable for you. Lenders will also look at your credit history to determine if you are a responsible borrower and if you are likely to make your monthly payments on time. This credit history usually covers the past six years, although some lenders may look at the past four years with a high emphasis on the last 24 months.

Your credit history will include information such as your credit score, bank accounts, lines of credit, debt, and addresses. Lenders may also look at your bank statements from the past 2-3 months to assess your income, savings, and expenditure. If you are self-employed, they may look further back, from 12-24 months, to evaluate your average income over a longer period.

It is important to note that your credit history is not the only factor considered by lenders. Even with bad credit, you may be able to find a lender that meets your criteria. A good track record of steady income, low debt, and a history of repaying financial obligations can indicate that you are a trustworthy borrower. Additionally, seeking help from a mortgage broker or financial advisor can assist you in finding the right lender and the most affordable route for your situation.

While most negative items on your credit report are removed after seven years, some may remain for up to 10 years. However, older items, usually those older than three years, may only require an explanation. Recent bad credit issues may be treated more severely by lenders, but improving your credit history and demonstrating good money management for an additional 6-12 months can increase your chances of approval.

Frequently asked questions