Regulatory rules from the Financial Conduct Authority (FCA) do not specify that bank statements must be used to assess affordability, but lenders often use them to verify income, as well as outgoings.
But some banks have quietly moved away from this approach and are instead relying on credit scoring, among other means, to assess suitable borrowers.
However, this could become more difficult as Open Banking provides easier access to borrowers’ spending and income.
Santander and Halifax confirmed they do not ask to see statements as part of standard applications.
Virgin Money also does not automatically require bank statements, but in some circumstances will ask for them.
Earlier this year Santander sent an email to brokers specifically requesting advisers not to send the documents unless asked.
The bank added that if asked to send a statement to verify, for example, benefits or salary, advisers should only send the single page on which the income entry is displayed.
Bank statements create underwriting problems
Bank statements throw up a myriad of additional problems in an application, which is why some lenders may try to avoid looking at them, advisers suggested.
Nick Morrey, product technical director at broker John Charcol, said while some lenders don’t ask for statements, they are not necessarily advertising this.
He added: “What they want to see in the first instance is that the salary declared on the payslip is what goes into the bank account, and that is understandable for potential fraud reasons.
“But once they are looking at a bank statement they have to review it properly and that means looking at all the transactions to see if there is anything that the lender could see as a problem.”
Malcolm Davidson, managing director at mortgage broker UK Moneyman, questioned whether lenders really want to know the whole truth about potential borrowers.
He said: “Some lenders rely on credit score and don’t drill into banking statements.
“Underwriters can’t unsee what they have seen – they have to deal with any issues raised.”
Rachel Lummis from Xpress mortgages said even though lenders may not ask for the documents, it’s not a ‘get out of jail card’ for borrowers.
She added: “The adviser will need bank statements for assessing affordability, proving income and compliance purposes and the lender fully expects the adviser to have them on file.
“The solicitor will need them for anti-money laundering purposes and proof of deposit.”
Rachel Dixon, mortgage broker at RH Dixon, agreed that advisers need bank statements for their own compliance.
She said: “Regardless of whether the lender requires a bank statement, I will still obtain three months to add to my file.
“I had an instance only recently where I looked at my clients bank statements and he had more than 50 betting transactions in a three months period.
“I made it very clear to the client that he risked being declined if the lender had an issue with them.
“I also made sure that I allocated £600 on his budget, just in case he continued the habit. The mortgage went through just fine, however my compliance notes made sure that this issue was highlighted and I had considered the impact of this.
“The lower the loan to value, the less documentation typically required by the lender… But it doesn’t mean the adviser doesn’t need to do the job of the lender by grilling the clients and having a good compliant file to ring fence it all.”
There is no requirement that a broker must ask for bank statements from a borrower as evidence of affordability, but as advisers noted it can provide evidence of the suitability of recommended deals.
The lender is responsible for complying with the regulator’s lending rules and ensuring the borrower can afford to repay the mortgage.
Out of kilter with Open Banking
In theory, Open Banking should make it easier for lenders to assess potential borrowers.
But accessing months of spending habits could create further underwriting problems.
Sebastian Riemann, broker at Libra Financial Planning, said: “Lenders will be able to scrutinise all spending habits and patterns and it is likely that some that would ordinarily have qualified, then fall outside of lenders requirements.”
Davidson suggested avoiding bank statements is “out of kilter” with the concept of Open Banking and questioned how these lenders will operate in this new environment.
He said: “Open banking is going to lead to this slicker mortgage process – but lenders don’t want to see [all customers ingoings and outgoings].
“Do they want to know the truth? I don’t think they do.”
A spokeswoman for Santander said: “Brokers have fed back that there is sometimes uncertainty around the paperwork that is necessary for each application, resulting in additional paperwork being needlessly collated and submitted.
“To support them, we sent an e-mail clarifying the paperwork requirements – one element of this was around securing applicant’s bank statements.
“As a prudent lender, we must always ensure the necessary affordability checks are carried out so that people get the product that meets their needs and can afford the mortgage for the length of the term.
“The communication was designed to help brokers collect what was needed for bespoke cases, enabling them to quickly and easily get the right decisions for the customer.
“We currently have access to customer information from credit bureaus, which will help paint a picture of applicants, including current account turnover as part of automated income verification.
“We welcome any further information that Open Banking may bring, our priority is supporting brokers and ensuring customers get the right mortgage to meet their needs.”
A spokeswoman for Halifax said it doesn’t ask for bank statements as the lenders use “a variety of tools to assess a customer’s credit worthiness, including credit scoring and an affordability assessment”.
Many lenders confirmed they do still require bank statements, although NatWest doesn’t require statements if the borrower is already a customer.
A spokesperson for Accord Mortgages said: “We require at least one bank statement as part of our mortgage application process to be able to validate the accuracy and authenticity of a borrower’s income.
“While we take note of a potential borrower’s outgoings, we do so in the interest of both the borrower and ourselves to make sure they have the ability to be able to repay the agreed monthly payment.
“For example, we look at ongoing financial commitments, which could indicate a debt repayment scheme that has been previously undeclared, or whether applicants are regularly unable to get out of their overdraft or whether there any signs of applicants being in financial difficulty.”