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Overdraft Mortgage

Will having an overdraft affect my chances of getting a mortgage offer? Get the right advice here.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 3rd July 2019* | Published: 19th June 2019

We get lots of enquiries from customers who are concerned about their overdraft usage before they apply for finance to buy a property, and they often have questions like ‘does an overdraft affect a mortgage application’?

Maybe you have already been turned down for a mortgage (due to an overdraft issue) or have heard about a mortgage with an overdraft and want to know more.

We have put together a comprehensive guide to overdrafts and mortgage applications which includes:

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Will I get a mortgage with an overdraft?

If you have an overdraft, don’t worry, quite a few people have one as well. Many lenders do not consider overdrafts a problem generally, but it all depends on how you use it, if and when you use it, and how dependent you  are on it. There are different elements that a lender will look at when assessing your mortgage application the main one being:

Affordability

When a lender is looking at your overdraft usage or if you have large overdraft facilities available, they are just assessing your ability to repay that mortgage based on past  use or the potential to use one going forward.

This all comes under affordability, an important series of tests based on what the lender knows about your income and expenditure that you disclosed on the application and information they see from your credit file. This information demonstrates to the lender how you manage your money.

If you live in your overdraft, so to speak, whilst generally this isn't an issue, you probably pay monthly fees and interest for use of your overdraft. Lenders will usually include these when calculating your monthly disposable income which could impact your borrowing amount.

How do authorised overdrafts affect mortgage applications?

Lenders can view authorised overdrafts differently dependent on their lending criteria.

So, can I get a mortgage with an agreed overdraft?

The good news is that it is possible to get a mortgage while in an overdraft. Some lenders may ignore large overdrafts that are hardly used but others may not like the potential for borrowing that is readily available and could affect long term affordability, especially if the amount you're looking to borrow is at the higher end of the scale.

What to do if you’ve been turned down for a mortgage because of an overdraft

There are many reasons why a mortgage may be rejected due to an overdraft but thankfully this is usually more lender specific than anything else. The best thing to do in this case is to find out exactly why the lender has rejected the application. What was it about your overdraft usage did they not like?

  • Do you live in your overdraft?
  • Do you have multiple overdrafts?
  • Do you have a large overdraft facility?
  • Have you had unauthorised overdraft charges?

Then speak to one of the expert brokers we work with who will be able to give you the right advice and potentially find the right lender for your circumstances.

Does being in your overdraft affect a mortgage application?

Can overdrafts affect you getting a mortgage? Yes, they can.

Whether you live in one, or you have an agreed £2,000 overdraft facility on one account and £1,000 on another account that you never go into, the result can be the same.

Many lenders view overdrafts and overdraft usage very differently, however. If you are constantly living in your overdraft it could potentially say to the lender that you’re living beyond your means or are unable to manage your finances.

The good news is you can get a mortgage if you are in your overdraft, as there are lenders out there who cater for people who use their overdrafts, whether that be for a few days before payday or those who are straight back in the red the day after payday.

The right thing to do would be to speak to an expert broker, like the ones we work with. Brokers who have the experience in getting people mortgages whilst they have been using their overdrafts, as they know exactly which lenders are best positioned to help customers under these circumstances.

Does having an unused overdraft affect a mortgage application?

As previously mentioned, even if you don't use the facility at present but have a large facility available, this can make some lenders uncomfortable, the same as with credit cards. The reason for this is the impact that using these facilities could have an affordability.

For example, the standard minimum monthly repayment for a credit card is 3% of the outstanding balance, at the time of writing. Many lenders view overdrafts the same way. If you owed £10,000 of debt across these facilities then £10,000 x 3% = £300.

It's uncommon but not unheard of for lenders to agree cases with conditions that overdraft (and credit card) limits to be reduced, particularly if borrowing to consolidate debts.

Is mortgage approval with student overdrafts possible?

Many customers come to us and ask questions along the lines of ‘does a student overdraft affect getting a mortgage?’ concerned over old dormant student accounts that still have a negative balance.

In short, the answer is that many mortgage providers will lend to people with a student overdraft.

Most lenders are aware of what university is like and how it is being a student. It may be included in any affordability assessment done by a lender, so could have an affect on the amount you could borrow.

Speaking to one of the expert mortgage brokers we work with to see how your student overdraft may affect your mortgage application would be the best course of action.

Unauthorised overdraft use/charges and its effect on mortgage applications

Things happen in life where sometimes we run out of money or we have had an unexpected cost we have struggled to cover before payday.

Does going over your overdraft limit affect a mortgage application?

A few lenders understand this and if it is a one-off or an isolated incident which is explainable, they will consider this on a case-by-case basis and view your application on its merits. Lenders normally will collect 3 months of bank statements and do not like seeing returned items on them.

It would be a good idea to speak with an expert broker, like the ones we work with who have experience in dealing with these types of mortgage applications to get the best advice and to find the right lender for your circumstances.

Can you use your overdraft for a mortgage deposit?

Only a small minority of lenders would be okay with this, so you should seek specialist advice if you’re planning to use an unsecured debt such as an overdraft to form all or part of your mortgage deposit.

The key to this is being upfront and honest with both the broker and the lender as they will need to work this into their affordability assessments.

When using an overdraft to finance a deposit you must have a plan in place that is affordable to enable you to repay alongside your new mortgage. This is such a niche area of mortgage lending it would be a good idea to speak with an expert broker to find the right lender for your circumstances.  

What is an Overdraft Mortgage?

This is a product that was acquired by Barclays when they took over the Woolwich back in 2000. It went through different names over the years, and has been called many things such as Barclays mortgage current account overdraft and Barclays mortgage reserve overdraft.  It was simply a secured overdraft facility for additional lending, when those funds were required and that was pre-arranged.

Having a mortgage overdraft would come with a new current account, debit cards and cheque book and would allow the customer to draw down on the funds or pay for things from the account.

Getting a mortgage with an overdraft is no longer possible at Barclays as they  have now unfortunately stopped offering this product to new customers.

Speak to an expert on getting a mortgage with an overdraft

If you have questions about getting a mortgage when you have an overdraft (used or not)  or anything else in this article and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

We don’t charge a fee, there’s no obligation and speaking to us won’t leave any hard searches on your credit file.

Updated: 3rd July 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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