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Do overdrafts affect a mortgage?

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Jan 8, 2023

Fact Checked By:
David Nicholson - Finance Editor

Does an overdraft affect you getting a mortgage?

In an ideal world, you wouldn’t be overdrawn when you apply for a mortgage. However, it can be possible to obtain a mortgage even if your bank account has gone into the red.

This guide will help you understand how mortgages and overdrafts work.

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Is it possible to get a mortgage if you have an overdraft?

Although an overdraft can affect your chances of getting a mortgage, it won’t necessarily mean your application is declined. The circumstances surrounding your overdraft facility will determine whether a mortgage lender will accept or reject your application .

  • What type of overdraft do you have? Unauthorised overdrafts can be more troublesome than authorised because they can be seen as financial mismanagement.
  • How dependent you are on your bank overdraft?  If you are always overdrawn, some lenders might see this as a sign that you’re spending more than you can afford.
  • How big is your overdraft? While large overdrafts can be uncomfortable for lenders, especially if they’re used frequently, they’re not necessarily a deal-breaker for your mortgage application.

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Has your overdraft  prevented you from being approved for a mortgage?

If you are denied a mortgage due to your overdraft use, it could be that you didn’t approach the right mortgage lender or mortgage broker. It could also be possible that another mortgage provider will accept your application.

Remember that a mortgage rejection due to overdraft grounds does not mean you won’t get a mortgage elsewhere. There are the steps you can take to improve your chances of getting a mortgage with another lender.

Contact us today for free mortgage advice from our mortgage brokers to discuss a mortgage application or to help have a mortgage approved.

  • Do not delay your plans. Many people in this situation believe they have no choice but to wait until their overdraft is cleared before applying for a mortgage. Even if you have an overdraft, there may be lenders that could offer you a mortgage. Contact mortgage brokers today to discuss mortgage applications and how overdrafts affect mortgage applications.
  • We can match you with the right broker. It’s best to not rush back without professional mortgage advice. A second rejection could have a negative impact on your credit score. You can avoid further rejections by using our broker-matching free service.
  • Let your mortgage broker do all the work. Our mortgage broker will have a solid track record in helping people with overdrafts get mortgages. They’ll examine whether you have grounds to appeal the rejection but in most cases they’ll help you find an alternative lender.

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Is it possible to use an overdraft to pay a mortgage deposit?

No, mortgage lenders usually won’t let you pay a mortgage deposit with money from an overdraft.

This would be considered reckless lending.

You’ll need to save – or be gifted – a deposit to be offered a mortgage.

You might also find the guide to low deposit mortgages helpful. Alternately, our guide to mortgage deposits will provide information on acceptable deposit sources.

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Do I need to clear my overdraft before applying for a mortgage?

While you don’t necessarily need to pay off your overdraft before applying for a mortgage, paying down your debts can help you get a mortgage application approved.

It’s also a good idea to pay off loans and credit cards where possible.

Bear in mind that lenders will look at your bank statements for up to six months before you make a mortgage application – so you should ideally try not to use your overdraft too much in the six months before you apply for a mortgage.

Can an overdraft impact my ability to get a mortgage?

An overdraft can result in monthly fees such as interest, which will impact your affordability assessment when you apply for a mortgage.

However, simply having an authorised overdraft ready to use – but not used – shouldn’t impact your ability to get a mortgage. Most current accounts offer an authorised overdraft up to a certain limit.

However, if your overdraft is used frequently, it could indicate that you are not financially stable and continually spend more than you earn.

However, some lenders may still be open to considering you even if your overdraft is used frequently.

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Has my overdraft prevented me from being approved for a mortgage?

If you are turned down for a mortgage, ask the lender why.

It might be that it didn’t like the amount of credit you had available, or you might have used the overdraft too often.

If you are rejected by one lender it doesn’t necessarily mean you’ll be turned down by others too.

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Talk to an expert about mortgages and overdrafts.

It is a good idea to seek professional advice before applying for a mortgage with an existing overdraft.

Borrowers who frequently use their overdraft are often a red flag to mortgage lenders. They might reject your application or charge you a higher rate.

We can match you with a mortgage advisor that helps overdraft customers get a mortgage. They are experts in this area and can help you increase your chances of success, even if your application has been rejected elsewhere.

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FAQs on overdrafts affecting your mortgage application 

Do I need to clear my overdraft before applying for a mortgage

It can be beneficial to clear an overdraft before applying for a mortgage. This can be a great way to convince the lender of your financial health.

However, clearing an overdraft before applying for a mortgage is not always necessary. Lenders will usually overlook the occasional dip in the red if it is justified and won’t penalise you for using an overdraft responsibly.

What effect will an unused overdraft have on my mortgage application?

Regular or occasional use of an overdraft facility is less likely to cause problems than one that is regularly used. In most cases, however, it shouldn’t affect your eligibility for a mortgage.

However, if your lender suspects that you may end up maxing out your overdraft in the future, it could impact your mortgage prospects.

What does an overdraft do to my credit score?

An arranged overdraft will be listed on your credit reports as available credit. There will also be a record of unauthorised overdrafts or charges that you have paid.

If you use your overdraft regularly, this will also show on your credit report.

Your credit rating will not be affected if you pay off the overdraft in full and use it sensibly. This can help you build a good credit score.

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