What is ‘account conduct’ and how can it affect my chances of getting a home loan?

Disclaimer: The below guide is general in nature and do seek individual financial advice to see how this applies to your situation. Our experienced advisers are on hand to help at no cost to you (T’s and C’s apply)

The journey to mortgage approval involves more than just a credit score, good income, and having enough deposit. Lenders will look closely at our financial behaviour, including account conduct, from our bank, credit card, and loan statements.

What is Account Conduct?

Account conduct refers to how someone manages their financial accounts, including everyday accounts, savings accounts, and any existing loans.

.Lenders assess account conduct closely, as this can be a good indicator of how likley we are to manage our future mortgage well. Good account conduct indicates responsible financial behaviour, while negative conduct may raise red flags for lenders.

Key Factors in Account Conduct:

Loan payments

Banks like to see that loan repayments on existing loans, like car loans or personal loans, are being made on time. Late or missed payments will be viewed negatively.

Unarranged Overdrafts

An overdraft is when the bank has already given us a limit on a transactional account, of say, $1,000. If we go less than $1,000 into this overdraft, then the bank is ok and fees may be charged for this.

Unarranged overdraft is when no prior arrangements have been made for an overdraft but our accounts still go beyond this limit. This usually shows on our statements as ‘unarranged overdraft fees’. These fees can be minimal, but this is not the issue in a lender’s eye. The issue is that we are not keeping within the limits of our accounts.

Account Balances

Although not essential for all lenders, but best practice is to see that account balances generally go up month after month. It’s less desirable to see that funds in our account go from payday to $0 every month.

Withdrawing cash from credit cards

This is another situation where the lenders give us access to something and then mark us down for using it. It may seem trivial, but here’s why lenders see withdrawing cash as an issue. Withdrawing cash from a credit card is nearly always a very expensive way of getting access to cash, often charging instant fees in the 20% range.

Lenders assume that if we are willing to pay this hefty fee for this service, then things might be getting a little tough for us, else we would look for cheaper lending or use our savings for regular expenses.

Going over credit card limits

If our limit on a given credit card is $2,000 and the amount we owe is $2,200, lenders will see this as a sign that we are having trouble keeping within our given limits. Ensure that credit cards are kept for emergencies or rewards, but

Missed payments or dishonoured direct debits

This one is more straightforward. If we are missing payments on direct debits we have arranged or other charges that are withdrawn from our accounts, then the lender will view it as more likely that we would miss home loan repayments too.

How will this affect my chances of approval?

If you have any of these on your account before applying for a loan, it doesn’t necessarily mean an instant rejection. I’m sure everyone at one time or another has had a missed payment or unarranged overdraft by accident.

The important thing for lenders is patterns of behaviour. A one off instance of something is not a pattern, but unarranged overdrafts, missed loan payments and withdrawing cash from credit cards every month could indicate account conduct issues.

Will account conduct affect the amount I can borrow?

Not really but it will affect whether we can borrow at all.

The amount of lending available to us likely won’t increase if we have good account conduct, but if we had bad account conduct, we might not get the loan at all.

Some lenders are stricter than others in terms of account conduct. Some will view a single unarranged overdraft as unacceptable, others will take a more lenient view. This could mean that if there was a more suitable lender for us, we may not have access to them if the account conduct is not strong enough.

Tips for Improving Account Conduct

Create a Budget

Having a budget with a surplus after paying all expenses reduces our chances of going into unarranged overdraft or going past our limits. Seeing our expenses out on paper can also be a good guide as to where we can cut costs and where we are at financially. This in turn can help us to grow our savings or get us to where we want to go.

Emergency Fund/Keeping a float

Building an emergency fund is a great tool to make sure we don’t need to go into debt to borrow for everyday expenses. This reduces our chances of going over our limits or getting into temporary trouble.

Automatic Payments & Direct Debits

Review your Automatic Payments and Direct Debits, ensuring that they line up as well as possible with when you get paid, perhaps a day later in case of delays.

It may be a good opportunity to review or even cancel direct debits and AP’s for services we no longer use.

A common occurrence is for things like phone contracts or utility bills to be misaligned with when money is in the account. This can be a small thing that can have a big impact on account conduct and credit scores.