Does being in your overdraft affect getting a mortgage?
Yes, being in your overdraft can affect a mortgage application, but it does not automatically prevent you from getting a mortgage.
Mortgage lenders will normally consider the wider picture, including how often you use your overdraft, whether you remain within the agreed limit, your income, regular expenditure, other debts and overall affordability.
Occasional use of an arranged overdraft can be treated very differently from consistently relying on the full facility, exceeding your limit or showing other signs of financial pressure.
Different mortgage lenders also have different approaches, so using an overdraft does not mean that every lender will assess your application in the same way.
Can You Get a Mortgage While in Your Overdraft?
Yes. It is possible to get a mortgage while you are using an overdraft.
There is no general mortgage rule requiring your current account to have remained in credit for a particular number of months before you can apply.
What matters is how the lender assesses your overall circumstances.
A lender may look at:
- How frequently you use the overdraft
- How much of the available limit you use
- Whether the account returns to credit regularly
- Whether you stay within the agreed limit
- Whether payments are returned or missed
- Your other borrowing and financial commitments
- Whether the proposed mortgage remains affordable
Someone who occasionally uses a small arranged overdraft may therefore be assessed differently from someone who remains heavily overdrawn throughout each month.
How do mortgage lenders assess overdraft usage?
Mortgage lenders can obtain information about overdrafts from your credit report and may also review your bank statements where these are required.
An overdraft on your credit report can show information such as the limit and reported balance. Bank statements can provide additional context about how the account is being used.
The lender may therefore consider whether the overdraft appears to be an occasional facility or something you rely on continuously to meet normal expenditure.
There is no single level of overdraft use that every lender considers unacceptable. Criteria and affordability calculations vary between lenders.
Do mortgage lenders check bank statements for overdraft use?
They can.
Where a lender requests bank statements, it may be able to see whether your account regularly goes overdrawn and how the account is managed during the period reviewed.
The lender may also notice issues such as:
- Regular use of the full overdraft facility
- Going beyond the agreed limit
- Returned direct debits or payments
- Other regular financial commitments
- Significant unexplained expenditure
- Whether your income is being paid into the account as expected
Bank statements are not reviewed solely to check whether you have used an overdraft. They form part of the lender’s wider assessment of your income, expenditure and financial circumstances.
Worried Your Overdraft Could Affect Your Mortgage?
Many customers worry that using an overdraft will automatically stop them getting a mortgage. In reality, lenders tend to look at the overall picture, including how the overdraft is used, your income, affordability, other financial commitments, credit history and how your bank account has been managed.
At Kerr & Watson, we can review your circumstances before you apply and help you understand whether your overdraft usage is likely to need explaining to a lender.
Can an overdraft reduce how much you can borrow?
Potentially.
If you have an outstanding overdraft balance or the lender considers your account conduct relevant to affordability, it may affect the maximum mortgage available.
The impact is not fixed. It will depend on the amount involved, your income, other financial commitments and the lender’s own affordability calculation.
This means two applicants using similar overdraft facilities could receive different borrowing amounts with different lenders.
Is an arranged overdraft acceptable for a mortgage?
An arranged overdraft does not automatically cause a mortgage application to be declined.
Occasional use within the agreed limit may be acceptable, particularly where the rest of your finances are well managed.
However, regularly relying on most or all of the arranged facility may still raise affordability questions, even if you never exceed the limit.
The important point is therefore not simply whether the overdraft is arranged, but how it is being used.
What about an unarranged overdraft?
An unarranged overdraft can be more concerning to a mortgage lender because it means you have spent beyond the facility agreed with your bank.
A single isolated incident does not necessarily mean a mortgage application will fail.
However, repeated unarranged overdrafts, missed payments, returned direct debits or other account-management issues can reduce the range of lenders prepared to consider the application.
The circumstances, amount, frequency and how recently the issue occurred can all be relevant.
Should you clear your overdraft before applying for a mortgage?
Not necessarily.
There is no universal mortgage rule that says every overdraft must be cleared before you apply.
If you regularly rely on your overdraft, reducing or clearing it may improve your overall financial position and could help affordability. However, whether this is necessary will depend on your circumstances and the lender.
For example, using all of your savings to clear a small arranged overdraft immediately before applying may not always be the most appropriate decision if those savings are needed for your deposit, legal fees or other purchase costs.
It can be useful to speak to a mortgage adviser before moving money purely because you think it is necessary for the mortgage application.
How long should you stay out of your overdraft before applying for a mortgage?
There is no fixed three-month or six-month rule that applies to every mortgage lender.
Some lenders may review recent bank statements, but the period requested and the importance placed on overdraft usage varies.
If you regularly depend on your overdraft, reducing that reliance before applying can demonstrate a more sustainable financial position. However, you should not assume that you must wait a specific number of months before seeking mortgage advice.
If you need a mortgage soon, it is worth checking your options rather than delaying an application automatically.
Could one use of an overdraft cause a mortgage decline?
Usually, a single occasion on which you enter an arranged overdraft would not, by itself, determine the outcome of a mortgage application.
Lenders look at your circumstances as a whole.
An isolated use of an overdraft is different from a pattern of persistent borrowing, repeatedly exceeding limits or having payments returned because there were insufficient funds.
The lender’s own criteria will ultimately determine how the account conduct is treated.
Does having an overdraft affect your credit score as well?
It can.
Your overdraft can appear on your credit report, and the balance, limit and way the account is managed can contribute to your wider credit profile.
However, credit score and mortgage affordability are different issues.
For more information, read our guide to how using an overdraft can affect your credit score.
Find out Your Options
Frequently asked questions about overdrafts and mortgages
Does an unused overdraft facility affect a mortgage?
An unused overdraft facility can potentially be relevant because it represents available credit, although the way this is treated varies between lenders. The existence of an unused facility does not automatically mean your mortgage application will be declined or that your borrowing will be reduced.
Should I reduce my overdraft limit before applying?
Not necessarily. Some applicants consider reducing unused credit limits before applying, but this should not be done automatically. Mortgage lenders have different approaches to available credit, and reducing a facility you rely on could also leave you with less financial flexibility.
Can I get a mortgage if my overdraft is maxed out?
Potentially, but regularly using most or all of an overdraft facility may raise questions about affordability or reliance on short-term borrowing. The lender will consider this alongside your income, expenditure, other debts and wider financial circumstances.
Conclusion
Being in your overdraft does not automatically stop you getting a mortgage.
Lenders are more interested in understanding how the facility is being used, whether the proposed mortgage is affordable and whether your wider finances appear sustainable.
Occasional use of an arranged overdraft can be very different from consistently relying on the full facility, exceeding your agreed limit or having regular payments returned.
Because mortgage lenders assess these circumstances differently, it can be useful to check your options before submitting an application or assuming you need to wait until your overdraft has been cleared.
At Kerr & Watson, we can review your circumstances, assess how your overdraft is being used and identify mortgage lenders whose criteria are suitable for your situation.
Need help applying for a mortgage with an overdraft?
Using an overdraft does not automatically mean you cannot get a mortgage. The way lenders assess overdraft usage varies, particularly where the account is regularly overdrawn, close to its limit or has recently exceeded an agreed facility.
At Kerr & Watson, we can review your circumstances before you apply and help identify lenders whose criteria are suitable for the way your finances are managed.
