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BUDDING buyers might not know about 10 bad spending habits could actually stop you from buying a house, a mortgage expert has revealed.
If you’re applying for a mortgage, it’s likely that you’ll have to provide at least three months worth of bank statements, and possibly even six.
A mortgage expert has revealed which 10 bad habits you should avoid
But you might not know that some of the things you are spending money on are actually “red flags” to lenders.
From playing bingo to making payments to pals with jokes or rude references in, you could be ruining your chances of getting a loan according to mortgage broker Boon Brokers partner Gerard Boon.
With six years of experience dealing with mortgages, Mr Boon reveals 10 bad spending habits you must avoid now – or risk seeing your application refused.
It comes as Brits are still desperate to bag their own home, with soaring demand driving up prices.
Latest figures show that the average house price was £270,708 as of November 2021- 10% higher than the previous year.
Price hikes have been driven by a big shortage of homes on the market, meaning buyers are locking horns in bidding wars up and down the country.
But even if you’ve beaten rival bidders and an offer is in the bag, make sure you don’t fall down at the last hurdle when getting your mortgage deal over the line – here Mr Boon explains why.
Working for a family business
If you work for a family business, keep in mind that lenders might probe deeper into your situation.
“Lenders can be nervous that family have employed the relation just for the purpose of them being able to take out a mortgage,” Mr Boon said.
It could make them nervous about agreeing to loan you money on this basis.
Rude references or jokes in payments
While putting in over to friends and family could seem harmless, it might hamper your chances of getting a loan approved.
Making a joke about illegal activities or putting a rude word in payments to friends and family is unlikely to impress lenders going through your statements.
“Using ‘funny’ references which could be misconstrued may mean a lender needs to investigate further,” Mr Boon said.
That could mean your application gets held up – or even thrown out.
The Sun has reported cases where customers were refused loans due to inappropriate banter like this.
Splashing out on luxuries
While it’s tempting to splash out and treat yourself, your lender could be wary agreeing to a loan if you’re doing it too much.
Mr Boon said that most won’t be too concerned if you can afford pricey purchases.
But splurging beyond your means – or doing this while in debt – could be a cause for concern.
“Lenders will worry if they feel that spending is out of control and exceeds what they would expect based on the applicant’s income,” Mr Boon said.
Lots of PayPal transactions
You can pay, send and accept money using PayPal.
But you might not know that using it frequently could stop you from getting a mortgage deal over the line.
“Although PayPal transactions in themselves are not a problem, because it’s not always clear who is being paid, having lots of vague PayPal transactions can raise concerns,” Gerard said.
Using buy now, pay later
If you use a buy now, pay later service, this will show up on your bank statement.
But be aware that some lenders may want to probe further into why you are using this to pay for goods.
They’ll want to see whether you’re using it because you don’t have the money to pay for your shopping in one go – this could be an issue for your application.
“Buy now, pay later options may signal to a lender that you are unable to pay for day-to-day items upfront, or are buying things beyond your means,” Mr Boon said.
He added the same goes for catalogue payments – where you spread payments for goods bought from a retailer over weekly or monthly instalments.
You might not know that playing bingo could be a red flag to mortgage lenders.
“Playing once in a while for fun with friends will cause no concerns, but a regular habit with larger sums would be classed as gambling, which may raise a red flag,” Mr Boon said.
The same foes for making regular payments to gambling sites or online casinos, which also show up on your bank statement.
It could be seen as risky spending behaviour that lenders will be cautious over – and it could mean you lose out on buying a home.
Multiple store cards
A store card works like a credit card, but you can only use it in the shop or retailer that you applied for the card from.
Interest rates for these are usually higher than for a credit card, according to Money Helper, and you’ll be charged interest if you don’t repay in full.
“Store cards in themselves are not an issue, but if you’re struggling to clear the balance every month, given their notoriously high interest rate, it could be a warning sign to the lender,” Mr Boon said.
Frequent payments to unknown third parties
If there’s an unknown third party involved in making transactions, it could be a cause for concern to lenders.
This means that another person is involved other than the payer and the payee when making a payment.
This could raise suspicions to lenders, because they do not know who is involved in these transactions, and why they are being made.
“There are lots of above board reasons to make frequent payments to third parties – but where possible, it’s best to make the reason clear to minimise any risk of a red flag,” Mr Boon said.
If cash is the main way you get paid, be aware it could have consequences for your mortgage application.
Some lenders might decline your application because of this – even though many Brits still get paid this way.
For example, if you take on private clients as a cleaner, dog walker or tutor, you might be paid cash in hand.
But lenders might not see cash in hand as a “steady, reliable and legitimate income” Mr Boon said – and it could mean you get a no on your application.
Recently taking out credit cards
If you’ve taken out a credit card recently, be prepared for your lender to ask questions.
It could be interpreted as a sign that you don’t have enough cash to cover your outgoings, or that you might be in financial distress.
That could make you a risk to lend to.
It could also knock your credit score – which is something all lenders look at in helping to decide whether to loan you the money.
Interest rates have risen to 0.5%, adding £700 a year to mortgages for two million homeowners.
And here’s what the interest rate rise means for your mortgage.
Another mortgage expert explains whether you should pay off your home loan early.
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