Do Mortgage Lenders Look At Spending Habits? (2022)

When applying for a mortgage, lenders look at a variety of factors to help them gauge how much they’re willing to let you borrow, if anything at all. This means making sure you tick the right boxes is critical to make sure you get the money you need for your new home.

Yes, mortgage lenders look at spending habits within their lending criteria. They use your spending habits to calculate whether you can afford the monthly repayments and see if there are any other potential red flags such as gambling.

Your spending habits are an essential part of the overall lending assessment and are a critical factor for whether you are approved or denied a mortgage. This is why In this post I’ll run through exactly what mortgage lenders want to see, how they check your spending habits, what to avoid and how to improve your spending habits.

Spending Habits Mortgage Lenders Want To See

Mortgage lenders want to see a variety of different factors when looking at your spending habits to help increase their confidence that you’ll be able to repay the money they let you borrow. This includes things like affordability and margin of safety which I’ll explain further.

  • Affordability. Mortgage lenders want you to be able to demonstrate that you can comfortably afford the mortgage payments. This means the higher your income in relation to your mortgage payments and expenses the better. This will help lower your risk in the eyes of the lenders and increase your chance of approval.
  • The margin of safety. This is the amount of money you have left after all of your monthly expenses and mortgage payment each month, the more the better. Mortgage lenders run scenarios including increasing the interest rates to judge whether you’d still be able to afford the mortgage in the event the interest rates were to suddenly increase.
  • Consistency. To help increase the confidence that the various calculations and assumptions are correct, the more consistent your earnings and spending habits the better. This is mainly focusing on the 3 to 6 months leading up to your mortgage application as that’s what they’ll ask to look at.
  • Minimal recurring payments. Recurring payments are seen as long term financial commitments in the eyes of the lender and this includes everything from a gym membership to phone bills and car finance payments. The lower your recurring payments the better as it helps to increase your margin of safety highlighted above.

What Do Mortgage Lenders Look For On Bank Statements?

Mortgage lenders use your bank statements to validate the information that they asked for during the application process. This information will mainly focus on your income coming in each month and your spending habits.

  • Salary or income coming in each month. Mortgage lenders want to be able to see your bank statement for the account that receives your income. If you have a job and a salary this will most likely be paid in one instalment each month and they will check that this aligns with other information, such as if they ask for previous payslips.
  • Recurring payments. Mortgage lenders will focus on recurring payments as they’ll most likely continue into the future and reduce your long term affordability. They’ll have probably already asked about your monthly subscriptions before they check your bank statements, however will be validating there isn’t anything unexpected, such as car payments you haven’t told them about.
  • Money left after expenses. Mortgage lenders will use your bank statements to help validate your margin of safety highlighted above in the section on spending habits. If you can show you have a lot of money leftover that you’re either putting into a separate savings account or are just letting build up into your account, this will be viewed positively.

These aren’t the only things mortgage lenders look for on your bank statements, there are some things that can raise red flags that you’ll want to avoid which I’ll run through below.

What To Avoid on Your Bank Statements

There are certain red flags that lenders can view negatively from having a high quantity of monthly subscriptions to using buy now pay later schemes. So if you can avoid or reduce these types of payments it should help your mortgage application.

  • Gambling and betting apps. Possibly self-explanatory although these types of apps can be viewed negatively by mortgage lenders as if they are used regularly it can be linked with gambling addictions. This can cause people to quickly lose all their money and not pay their mortgage payments so raises red flags to lenders.
  • High quantity of monthly subscriptions. The more monthly subscriptions you have the less money you’ll have left each month for your mortgage payments which will reduce your affordability in the eyes of the lender. If you also have a lot of monthly subscriptions, some of which you don’t use, it can demonstrate poor money management. Make sure to cancel what you don’t need or use, you’ll also have the added benefit of having more money to save or spend on whatever you want.
  • Buy now pay later schemes. Schemes such as Klarna can be viewed negatively by mortgage lenders as they can show that you’ve got poor money management. Try and avoid these wherever possible, especially in the 3 to 6 months before your mortgage application.
  • Joke payment descriptions. This one can catch people out as can seem harmless, however, if you send or receive money with strange payment descriptions it can cause a red flag in the eyes of the lender. For example, if you send your friend a bank transfer if they paid for a meal at a restaurant but you used the payment reference “poor service” as a joke, that can be viewed negatively by a lender.

How To Improve Your Spending Habits

Improving your spending habits will not only improve your eligibility as a borrower in the eyes of a mortgage lender, but it will also significantly help you in your day to day life.

By ensuring you’re getting value when you do spend money, you’ll either be able to reduce your costs and have more money left for savings or you’ll be able to spend more money on the things you do enjoy, win-win.

Here are a few ways you can improve your spending habits.

  • Avoid impulse purchases
  • Regularly review subscription payments to see whether they still provide value
  • Use cash back websites for large purchases
  • Create a personal budget

I’ve written a post about how to create a personal budget that you may find useful where I run through a variety of budgeting tips to help you reduce your monthly expenses.

Other Factors Mortgage Lenders Look At

Spending habits aren’t the only thing that mortgage lenders look for when assessing your mortgage application. Whilst ensuring your spending habits are in a good place for the months leading up to your mortgage application, you’ll need to ensure other factors are ticking the right boxes.

Your credit score and credit history are other critical factors mortgage lenders use to assess whether you’re likely to be a good person to let borrow money. This effectively shows that you’ve paid other financial commitments on time and have a good track record, demonstrating you can handle money well and helping to lower the risk to the lender.

Your level of income is also a critical factor and can also help offset any questionable spending habits. For example, if you have a lot of monthly subscriptions or other high expenses, but you also have a high income, this can still give the lender the confidence that you can comfortably afford the monthly payments.

Summary – Do Mortgage Lenders Look At Spending Habits?

Overall, mortgage lenders do look at a lot of factors when reviewing your spending habits. However, it all revolves around helping to increase lenders’ confidence that you’ll be able to repay the money over the long term. This will help reduce their risk and increase the chance that your application will be accepted.

If you do have any questions, make sure to contact a mortgage advisor that can give you advice specific to your personal circumstances and take you through all of your options. I’ve written a post about what questions to ask a mortgage advisor that you may find useful if you’re wanting to go down this route so you can get the most value out of your conversations.

Good luck with your mortgage application and enjoy your new home!