Table of contents:
What mortgage underwriters look for when verifying bank statements
Mortgage fraud: typical causes
Technology-led verification for lenders
Type of financial details scrutinised on bank statements
Typical reasons for mortgage application rejections
Mortgage lenders have taken to becoming extra diligent in their analysis of application documents following a rather turbulent time since the Covid-19 pandemic. The housing market has ebbed and flowed, withstanding the rollercoaster effects of Stamp Duty holidays, migration back to urban areas and now a Cost of Living crisis that has sent interest rates spiralling.
It is an unfortunate yet proven fact that with a rise in economic hardship comes a rise in fraud. Application Fraud, Document Fraud and Mortgage Fraud are methods used to obtain mortgages through deceptive means, leaving lenders at risk. Fraudsters prey on lenders whose operations approach to verifying bank statements is still manual, slow, and subject to human error.
So, what do mortgage lenders look for on bank statements and why?
It’s really simple. Bank statements, and other financial documents, are assessed by lenders to determine whether the borrower can afford the mortgage he/she is looking to secure. It’s about risk. The risk appetite of lenders naturally reduces in times of economic hardship, meaning that the verification process typically becomes more rigorous.
As you can imagine, due diligence plays a central role in the process of buying a new home primarily due to access to large sums of money. Financial institutions typically demand a ‘Proof of Deposit’ document, which verifies that the borrower has the funds for a downpayment on the property. Anywhere between 2 and 6 months of bank statements will also be requested to prove income, responsible spending and affordability.
In a nutshell, lenders look for signs of risk on bank statements and want to verify that the information provided to them is real. Homeppl's instant bank account verification tool extracts all account information at speed, eliminating the potential for human error when information is transferred from one document to another. There is a wealth of manipulation websites (like the below example!) and Youtube videos on how to falsify information on documents to appear more financially secure than is true.
Because of this, mortgage lenders, letting and estate agents and banks are turning to Homeppl for their technology, which can identify application deception and validate bank statements at both scale and speed and with precision.
What do mortgage lenders look for?
According to Action Fraud, the UK’s official and national reporting centre for all things cyber and financial fraud, the leading methods for mortgage fraud are the following:
The over-valuation of properties
Overstating a salary, income or financial affordability in general
Hijacking conveyancing protocol
Faking identity to secure a mortgage - either someone that is unsuspecting or worse, deceased
Taking out multiple loans with different lenders by misrepresenting Land Registry data
The value loss of mortgage fraud cannot be understated here. A study by CoreLogic has found that since Q3 2021, the year-on-year increase in mortgage fraud deriving from fake income declarations specifically has risen 27.3%. So when loan companies ask for bank details, this is because risk management is essential in this sector.
Do mortgage lenders check all bank accounts in the UK?
This depends on the lender. Some mortgage lenders will only check the bank account you give them but will run a credit check alongside that. Mortgage lenders that use Homeppl’s Fraud Finder technology as part of their risk assessment and fraud tech stack would also benefit from the extra security provided by Open Banking and data enrichment.
Not only would our document analysis tech determine whether bank statements, fake tax returns, invoices, investment portfolios or any other financial documents are fake and have been subject to document fraud, but we’d go one step further.
Our Open Banking algorithms help securely verify income. Our bank statement extraction software technology retrieves and groups financial data and offers actionable insights.
Our data enrichment collects a range of data points on each applicant to ensure that risk is flagged from the outset.
How does the mortgage document verification take place?
For a mortgage application to be marked as successful and safe by the underwriter, there are a series of details that must first be checked and verified for authenticity. This criterion can include, in the case of financial history: income, savings, deposit (if any), assets, and creditworthiness on all parties wishing to secure the loan. On top of that, proof of address documents and residential documentation would also be scrutinised.
One of the classic ways that a lender will verify the information provided ona bank statement is to reach out to the bank themselves, by phone, and ask them. Advancements in tech have made fake bank statements almost undetectable by the human eye and some lenders seek validation from the borrower’s actual bank. This is extremely time costly and inefficient. Think about how many individual mortgage applications are in progress at any one time in the UK!
Technology is now available to mortgage lenders to significantly streamline the verification process of mortgage documents. Fraud Finder, for instance, Homeppl’s latest product scrutinises:
The metadata of every document - determining whether the creation and the modification date match whilst determining what software has been used to create the document.
Fonts - determining whether the fonts used in the document match the verified fonts from an extensive database of authentic bank statements
Structure - Xray technology is used to highlight imperfections in the document’s makeup and where additions have been layered over the original
The barcode - to ensure that the document’s barcode data matches its source
And all this happens in a matter of seconds, leaving mortgage lenders with plenty of time to approve more applications and focus on other elements of their work.
The time it takes to source the bank of the borrower, ring through to the correct contact at the bank, share bank details to retrieve the right account information and then verify the information is accurate can be boiled down to literal seconds whilst providing more security (Phone calls can be easy to hack FYI!)
What details from financial documents are looked at by mortgage lenders?
The typical information taken from bank statements in financial assessments are the following:
The borrower’s account number and type (current, debit, savings etc)
The open/closed status of the account
The borrower’s account name - tested against all other documents including in their application
Current balance information, transactions data & average balance history
Trends and consistency in deposits & withdrawals
Anomalies of forms of income or cash injections. For example, large deposits with a documented source
Why are the borrower’s assets sourced and tracked? The answer is twofold: to prevent money laundering tactics and to ensure the borrower is not taking out a third-party loan to cover either the downpayment of the mortgage or future costs associated with the property purchase.
These details are scrutinised because lenders are required to check that the large amounts of cash provided by the bank do not go towards nefarious activities such as terrorism, fraud or money laundering. These are routine checks and come under the ‘Know Your Customer’ and ‘Anti-Money Laundering’ compliance policies.
Why mortgage lenders should be using technology & a data-led approach to income and affordability verification
USwitch has collated extensive research statistics on the breakdown of mortgage fraud and how fraudsters seek to pull the wool of lenders’ eyes.
As you can see from the above chart, the majority of cases are a consequence of misrepresentation of employment or through providing fake affordability documents such as bank statements.
Misrepresenting salary, or employer information accounts for almost half of all mortgage fraud in the UK (49.43%). Fake documents account for another 22.44%.
Luckily for UK lenders, Homeppl has an extensive employer verification process which authenticates whether a borrower has lied in this section of their application.
Domain testing, email stress tests, registry checks and other data enrichment investigations are conducted to ensure that any form of employer misrepresentation is swiftly sniffed out. Again, this process speeds up and ensures creditworthiness and risk assessment are accurate.
How far back do mortgage lenders look at bank statements?
Typically mortgage lenders in the UK will ask for 2 months' worth of bank statements but some lenders will ask more for more; it can range from anywhere between 2 months and 6 months. Why? Lenders are looking for stable income. This is an initial indication that you’re a low-risk borrower from the outset. If you have a series of fluctuations in your income, perhaps if you were a freelancer or a content creator, then further investigations into the stability of that income source may be required.
Lenders will also examine the savings in your bank to ensure that you can cover emergencies such as job losses or other significant financial hits. Underwriters typically feel comfortable with fund reserves that can cover between 3 and 12 months of no to low income.
What are the potential issues found on bank statements that trigger suspicion among mortgage underwriters?
For lenders whose underwriting flowers are powered by technology, such as Homeppl’s qualification flow, then all transaction details are scrutinised.
Applications can be declined on the bases of:
Unaccounted for cash deposits
Employer-gifted lumps sums of cash - again, another risk of mortgage fraud
Funds from overseas - although Homeppl technology goes much further to validate this source of income, thereby offering both the borrower and lender more financial access and protection
Significant cash derived from a gambling source - conveys risk and a lack of consistency
Signs of payday loans - unsecured borrowing will always be seen as risky. But again, Homeppl tech goes beyond credit assessment and can vouch financially based on an assessment of other risk factors
Which mortgage lenders don't ask for bank statements in 2022
The majority of the mainstream mortgage lenders such as HSBC, NatWest or Barclays will ask for bank statements as standard due diligence protocol. Some mainstream banks such as Halifax have stated that they do not require bank statements, but will youse other technology-powered tools to assess a loanee’s creditworthiness.