Do your bank statements conceal hidden red flags? Kay Hill discovers what lenders are wary of finding when they search through your financial details
A good mortgage offer doesn’t just come down to whether you have the right amount of income – your lender wants you to be the right kind of person as well! Which means in the run-up to applying for a mortgage you need to be extra careful not to give off any red flags that might make your lender doubt your reliability.
It’s fairly well known that are some issues that will make it much more likely that you will be rejected – things like a previous bankruptcy, bad debts or a County Court judgment will send most lenders running the other way; and a history of missing bills, late payments and excessive borrowing will certainly make you less popular. But there are other things that are more subtle, but could still work against you when it comes to getting the best mortgage deal.
Risky habits
Mortgage companies will want to look at three to six months of bank statements – and these days they don’t just cast an eye over the opening and closing balance. Instead, they dig into your life in forensic detail. “When you apply for a mortgage, lenders are playing detective, says Luke Hollingdale at Mojo Mortgages. “They cross-check all personal info, dive deep into income versus spending, and consider stability (length of employment, address history, UK residency), deposit source, and credit history.”
They also, he warns, look out for any transactions that might suggest you are anything less than a responsible member of society. “A lottery ticket purchase here and there is unlikely to raise any eyebrows. But frequent and large transactions to betting shops or gambling sites can be a major red flag. It suggests risky spending habits, which may raise concerns on whether you’ll prioritise mortgage repayments.”
In a similar vein, joking around with payment references that are visible on your bank statements is also a poor idea. “While it can seem fun to come up with ‘creative’ payment references when transferring money to friends and family, be careful this doesn’t teeter into inappropriate territory as lenders are unlikely to see the funny side,” he adds. “At best, it’ll cause delays as they’ll want an explanation. At worst, it could lead to rejection. Avoid delays (and embarrassment) by using genuine references that reflect what the transfer was actually for.”
Expert Comment
Before applying for any loan, use open banking tools to get a real-time view of your finances. Lenders increasingly use this data to assess affordability, looking at your actual income and spending patterns rather than just historical credit data. Connect your bank account to a personal finance app to see how your spending on gambling, buy-now-pay-later, or high-risk categories might be affecting your eligibility. Lenders are increasingly sophisticated at spotting financial stress. Late payments should be avoided at all costs as they can have a negative impact on your credit score. Direct Debits are a handy way to make sure you don’t forget to make your payments and that they are made on time. Multiple hard credit searches can damage your score, so avoid making several applications in quick succession. Only one in four people have checked their credit report in the past four years, and 32% of those who did found errors. These mistakes could be costing you thousands in higher interest rates. Check your report at least every six months using a free service – never pay for access to your own data. Look for incorrect addresses, closed accounts still showing as open, or payments marked as being late when they weren’t.
Alastair Douglas, CEO, TotallyMoney
Unusual transactions
When a lender goes through your bank statements, they are obviously looking for confirmation that you earn what you claim to earn. But unusually large or irregular amounts of money arriving into your account or unusual cash deposits can be a red flag, suggesting that you might not be declaring all your income, or worse, are even involved in something fraudulent. There are many genuine reasons for unexpected deposits, of course, from inheritances and birthday gifts to work bonuses or selling a car; just make sure that you keep a good record.
Equally, outgoings that you haven’t mentioned, such as subscriptions, a loan or a credit card you forgot to include, can make lenders wary that you might have other skeletons in the cupboard that you have conveniently forgotten about. While a string of large purchases in quick succession might suggest a pattern of overspending.
Debt disasters
If there’s one thing that lenders really don’t like, it’s payday loans – their use is a sure sign that you are finding it hard to manage your money even without paying a mortgage, so ideally, put a stop to it months before you consider applying.
In addition, lenders think that buy now pay later (BNPL) schemes such as Klarna or Clearpay suggest you are living beyond your means. Dan Coatsworth, Investment Analyst at AJ Bell says, “It’s so easy to click a button and give yourself a retail treat with buy now, pay later. The surge in popularity for BNPL schemes has raised the risk that certain people have become too reliant on credit and they don’t think about whether they can afford to buy an item before making a purchase.”
This can be especially true at this time of the year, with an estimated 14% of shoppers planning to use BNPL this Christmas. Vix Leyton, consumer expert at thinkmoney, says, “This is shaping up to be one of the tightest Christmases in recent memory, with the cost-of-living putting pressure on already limited budgets. Worryingly, Buy Now Pay Later is set to play a big role, which risks turning festive fun into a debt timebomb that will echo well into 2026. With adverts screaming at you to celebrate in style, and a long list of presents to get, it’s easy to see the temptation of spreading the cost, especially when it is so easy. But before putting Christmas on credit, it’s worth weighing up exactly what’s important to you and what’s just noise. Remember that Christmas is about celebrating with the people you love, not how much you spend.”
Your bank statements are, it seems, a window into your financial soul – so if things are looking a big murky in there, try to smarten up a bit and have a few months of being super responsible before handing them over for scrutiny. “Think of your bank statement as a financial CV,” says John Fraser-Tucker, Head of Mortgages at online mortgage broker Mojo Mortgages. “You want it to represent you accurately and showcase your finances in a good light.”
Expert Comment
Your credit score plays a key role in your financial life, influencing your ability to access loans, credit cards and mortgages with more favourable interest rates. Improving your credit score is possible with a few simple steps, like paying bills on time, keeping your credit card balances low, and checking your credit report for mistakes. If you’re new to borrowing, starting with a credit-building card could help you build a positive borrowing history. It may take time, and make sure to never borrow more than you can afford to pay back, but with consistent effort, you can boost your credit score and unlock better financial opportunities in the future. It’s worthwhile shopping around online and comparing cards to find one that best suits your needs and circumstances. Always make at least the minimum payment on time and keep your credit utilisation low. A low credit utilisation rate shows lenders that you’re only using a small amount of the credit that’s available to you and helps to prove you’re a reliable borrower. There are many reasons why borrowers should keep an eye on their credit report and credit score. It can make a significant difference in whether a potential lender will agree to let you borrow money or not, and on what terms.
Charlie Evans, Money Expert, Compare the Market
Kay Hill
Kay has been a professional journalist since her teens, working for local and regional newspapers, magazines and now websites as well. Kay work across a number of fields, including architecture, design, personal finance and the housing market – Kay enjoys making the complicated things in life a little easier to understand.As a consultant for PR company Building Relations, Kay has written for developers including Barratt London, Dandara, MTVH and Annington.
Kay enjoys the beauty of language, the structure of grammar and the process of condensing thousands of words of research and interviews into 1,200 carefully chosen words that will leave the reader a little more informed than when they started.
