Payday Loans and Mortgage Applications

Do you have a payday loan on your credit report? Are you worried that it will make getting a mortgage difficult or impossible? You’re not alone. But, the truth is they don’t have to spell the end of your home ownership dream

By using this article as a guide you’ll have a better understanding of how to improve your chances of securing a mortgage and who to turn to for the best advice.

Can you get a mortgage after a payday loan?

Yes, of course but it can be tricky, particularly if you’re trying to do it on your own. Lenders will count any loan you take out with a repayment period of less than twelve months as a payday loan.

Some lenders simply will not accept a mortgage application if a payday loan exists on your credit record – whether paid off or ongoing. But there’s others who will. The challenge is finding out who will and who won’t.

How do you do it?

The mortgage process can feel a little daunting at the start, but here’s some steps you can take to give your application the best chance of success.

Which mortgage lenders accept applicants with a history of payday loan use?

Some mainstream lenders, such as Post Office Money and Virgin Money, won’t lend to anyone with a historic payday loan, but there are providers who offer more specialist contracts with some additional conditions to the agreement – these will often include a higher interest rate offer.

Here are some examples of lenders’ specific criteria for this…

Some mainstream lenders, such as HSBC, will also consider mortgage applications from payday borrowers, but keep in mind that you may be approved at high rates due your borrowing history. Mortgage lenders who are more specialised in providing offers to payday loan applicants often apply minimal or lower rate increases.

If you’re looking for a lender who operates outside of the mainstream with more competitive rates and fees, this is exactly where your broker’s inside-knowledge can prove invaluable. They can identify who these lenders are and what offers they currently have available.

The information outlined in this section was correct at the time of writing (October 2021). Lenders reserve the right to update and amend their criteria at any time. 

Mortgage eligibility criteria for payday loan users

Eligibility terms will vary from one lender to the next, but we’ve compiled a list of criteria which most commonly impact applications:

How long ago was the payday loan taken out?

As a general rule of thumb, the more time that’s passed since your payday loan was first taken out (at least one year), the better your chances of  success. If you repaid your loan during the required period or earlier, this will help demonstrate reliability.

Overall affordability

Naturally, the amount of your income will be a factor in the approval process. Most lenders will cap their lending at 4.5x your annual earnings, while others will base loan size on monthly disposable income.

Income types such as self-employment, zero-hour contracts or variable income contracts usually need additional supporting evidence to back up your earnings history.

Credit score

Do you have multiple credit score issues or just one payday loan default? Lenders will take your overall credit score into account and will look at the bigger picture and stability of your finances and repayments.

How much deposit will I need?

Most lenders will require a minimum 15% deposit for payday loan mortgages. Low deposit offers (5%-10%) are rare and would be difficult, but there are one or two lenders who don’t require a large deposit in some cases.

The more deposit you can put down and the lower your loan-to-value ratio, the better the chances of approval are.

Get matched with an experienced mortgage broker

It’s not easy to get a mortgage if you have a payday loan on your credit report. But with the help of an expert broker, you can find the best possible rates and terms for your situation and make your homeownership goal a reality.

Contact us today to be matched with one of the specialist brokers we work with. We don’t charge a fee to make the connection and there’s no obligation to take things further after an initial consultation. Just give us a call at 0808 189 0463 or make an enquiry.