Do overdrafts affect a remortgage application?

An overdraft is a form of revolving credit attached to your current account, and like a credit card, it usually shows on your credit file and is included in a lender’s affordability assessment when you apply for a mortgage or remortgage. Using an overdraft occasionally is common and unlikely to be a problem on its own, but relying on it persistently, or being consistently close to your limit, can raise questions a lender wants answered.

Most current accounts offer an arranged overdraft as a standard facility, so having one at all is not unusual and is not, by itself, a mark against you. What lenders are generally more interested in is the pattern of use over several months, since that tends to say more about your day-to-day finances than the mere existence of the facility.

How does an overdraft show on your credit file?

Most current account providers report overdraft use to the credit reference agencies, showing your limit and, depending on the provider, how often and how heavily it’s used. Unlike a fixed loan, there’s no separate repayment schedule to miss, but exceeding an agreed limit, or using an unarranged overdraft, is generally recorded and viewed less favourably than staying within an agreed limit.

How is overdraft use assessed for a mortgage?

Lenders assessing affordability for a remortgage typically review several months of bank statements, and a current account that’s persistently overdrawn is one of the more visible signs they look for, since it appears directly in your day-to-day banking rather than only on your credit file.

Does overdraft use count towards credit utilisation?

Yes, generally. Credit reference agencies and lenders treat an overdraft as revolving credit alongside credit cards, so a large balance relative to your limit can affect your overall utilisation figure, which is one factor in how your credit file is scored. Our guide on credit utilisation explains this in more detail, including why keeping usage lower is generally seen as more favourable, even though there’s no single fixed lender rule.

Is a persistently used overdraft treated like persistent credit card debt?

Not under the same specific FCA rules, since those particular rules apply to credit cards, but the underlying concern is similar. If an overdraft is used heavily and consistently over a long period, without ever being cleared, it can suggest a similar pattern to persistent card debt: borrowing that isn’t actually reducing over time. Our guide on persistent credit card debt explains the specific card rules, which don’t apply directly to overdrafts, but the same underlying budgeting issue can affect a mortgage affordability assessment either way.

What can you do before applying?

• Review your last few months of statements the way a lender would, and look for how often you’re near or over your limit.
• Pay down the overdraft where you can, even partially, in the months before you apply, so your outgoings and affordability figures look clearer.
• Avoid relying on an unarranged overdraft, since this is generally viewed more negatively than staying within an agreed limit.
• Speak to your bank if you’re consistently struggling, since they may be able to offer a lower-cost way to manage the borrowing, or point you to free debt advice.
• Get free, impartial advice from MoneyHelper, StepChange or National Debtline if your overdraft, alongside other debts, feels unmanageable.

Would moving an overdraft into a remortgage help?

Some people consolidate an overdraft alongside credit cards or loans into a debt consolidation remortgage, which can lower the combined monthly outgoing. This moves what was unsecured borrowing onto your home, spread over a much longer term, which can mean paying more overall even though the monthly cost falls. Our page on debt consolidation with credit card debt covers a similar comparison, and it’s worth weighing the total cost carefully rather than focusing only on the immediate relief of clearing the balance.

Is an arranged overdraft ever a sign of good money management?

Not necessarily a bad one. Many people keep a modest arranged overdraft as a buffer for the odd month, without ever coming close to relying on it, and lenders generally understand the difference between having a facility and needing it. What tends to draw more attention is a pattern: an account that’s at or near its limit most months, rather than occasional, short-lived dips around payday. If your overdraft use looks more like the second pattern, it’s worth being upfront with your adviser about why, since being able to explain a temporary cause, such as a one-off expense, is generally more reassuring to a lender than an unexplained, ongoing reliance on the facility.

What this means if you’re remortgaging with adverse credit

If you already have a CCJ, defaults or a history of missed payments, a persistently used overdraft adds to the picture a lender is assessing, even though it’s a smaller factor than the adverse credit itself. Bringing it under control before you apply, where you can, helps present clearer affordability figures. Our page on remortgaging with a low credit score explains how several smaller factors like this are generally weighed alongside more significant credit issues.