Can Payday Loans Affect Getting a Mortgage?

payday loans and mortgages

Buying a home is an exciting time – whether you’re getting a mortgage for the first time or you’re moving on to something bigger and better. If you’ve found that perfect dream property or you’re just thinking about buying in the future, being savvy to the ins and outs of finances pays off in the long run.

Payday loans are incredibly common, with many people taking out at least one in their financial lifetime. But when it comes to securing that mortgage, will payday loans affect the outcome? We’ve covered all you need to know about payday loans and mortgages to ensure you go into the process with all the information to hand.

Will getting a payday loan mean I can’t get a mortgage?

The most important question you may be wondering is: will getting a payday loan prevent me from getting a mortgage? The answer is yes and no. A payday loan on your credit file won’t automatically mean you’re a no-go from some lenders, but it may limit your options slightly more than not having any form of credit would. If you’re responsible with your money, have no red flags on your credit report, and have a strong history of repayment, a payday loan doesn’t have to spell doom for your mortgage application.

Can I get a mortgage immediately after taking out a payday loan?

While a payday loan isn’t a sure-fire ‘no’ from your lender, you should also be cautious when taking any credit or loan out around the time of your application. Mortgage lenders are looking for a solid financial position and stability when they look at your credit report. A flurry of recent financial activity, whether it’s applying for credit cards or taking out a few payday loans, will send the warning bells ringing. The longer ago your payday loan was, the better it will be for you.

Should I get a payday loan if I have a mortgage in principle?

Any mortgage advisor will tell you that getting a car loan, credit card, or personal loan is an absolute no-go once your mortgage in principle is in place. Any changes in your credit report may flag up to your choice of lender, leading to you being refused at the final hurdle when it comes to signing off on your mortgage. If possible, your financial position should be entirely unchanged from the time you receive your mortgage in principle to when your mortgage is formally approved.

Are payday loans still considered if I’m moving house and getting a new mortgage?

Whether you’re a first-time buyer or you’re moving to greener pastures, a new mortgage means new checks with a different lender. This means any loans or credit will be considered for your acceptance or the ultimate rates you receive. The exception to this rule may be some product transfers, which is where you switch to a new mortgage with the same lender, but it’s worth double-checking in all cases.

Can I remortgage if I have a payday loan?

Remortgaging is a common way for homeowners to get better rates, access funds for renovations or switch to a new lender. Much like mortgages, when you move, your new lender will do a thorough check of your finances before determining whether you’re a good fit. If your financial situation has changed since your first mortgage, whether that’s a change in income or taking our more credit, this will be considered as part of your application.

Can I get a payday loan once I’ve got my mortgage?

If you’ve been approved for a mortgage and everything is completed, there’s no reason why you can’t get a payday loan after move-in day if you need one. Just be aware that if you plan to remortgage in three to five years, or you think you’ll move sooner than later, any form of credit will be considered as a part of your future application. Also, once your mortgage is in place, your lender doesn’t need information about your finances unless you apply for a product transfer.

Will payday loans affect buy-to-let mortgage applications?

Much like any other mortgage application, a lender will consider your finances as part of the application process. This means they will check your credit file to check for any and all information. As buy-to-let properties are usually an additional mortgage on top of your own, the criteria for approval may be even stricter than it is for a standard mortgage. Therefore, it’s crucial to pick the right lender for you to get the best possible outcome.

I’ve been refused a mortgage – what should I do now?

If you’ve been refused a mortgage, the first thing you can do is check-in with the lender to find out the reason. In some cases, they will be happy to tell you the factors that lead to refusal. From there, you can take the time to improve your credit file or speak to a mortgage broker or advisor to find a lender that’s better suited to you.

What factors affect whether my mortgage application will be approved?

Mortgage lenders will consider many different factors before they choose to approve you for your mortgage. These include:

How much credit you’ve taken out

Whether it’s one credit card or a payday loan, a single form of credit isn’t as likely to set off too many red flags to many lenders. But if you’ve got lots of credit and a multitude of loans, whether you’ve taken out multiple loans or you have a host of credit cards, this can be a problem for your application. Financial stability and a strong position is key to getting approved for a mortgage, so the less credit you have, the better it is for you.

When you’ve taken out loans

A payday loan that’s just tipping over the six-year mark is far less of a concern to a mortgage lender than if you’ve had to take out several payday loans in the last six months or year. The more recently you’ve had to access short term financial solutions, the more of a red flag this may be to mortgage lenders.

Your official credit report

Your credit report has all the details on your financial history, from who you’ve borrowed money from to how much you borrowed. Your lender will know when your financial agreements ended, if you failed to make any payments, or if you have bankruptcy or a CCJ against your name. In addition, they will be able to see any hard searches you’ve made for loans and credit. It’s always a good idea to check your credit rating ahead of time to know what to expect.

What can I do to make sure my mortgage is approved?

How can you improve your chances of your mortgage being approved if you have a payday loan? Here are some of the things you can do:

A spotless credit history

A history of on-time repayment and few credit requirements can help make your credit file more attractive to potential mortgage lenders. No missed payments, defaults, or additional hard searches can all help your case and boost your chances of approval. If you can prove you have a strong financial position today with no defaults on credit or problems with payment, you’re in a far better place to get a mortgage.

The biggest deposit you can save

The bigger the deposit you can offer, the less of a risk you are to lenders. Providing above the standard 5-10% through savings or gifted money makes you more appealing to lenders overall. The larger the legitimate deposit, the less they will need to lend you as a result. Your deposit cannot be a loan from elsewhere, even through a friend or family member.

Waiting a few years to apply

It may be frustrating if you’re ready to get on the property ladder, but time can make all the difference. After six years, any problems on your credit file will drop off. In some cases, lenders won’t consider historical payday loans on your credit check at all when you apply. While some do, these are in the minority, and many mortgage lenders aren’t as bothered by a payday loan you took out twelve years ago.

Working with a professional to find the right mortgage

If you have a payday loan, you may find that your options are slightly more limited. While this doesn’t mean you can’t get a mortgage, it does mean you want to be more careful about checking the fine print for lenders. A qualified mortgage broker has the knowledge and experience to find a lender that suits your needs and doesn’t automatically discount payday loans.

Looking for a payday loan? We can help

If you require a payday loan, even with bad credit, Cobra Payday Loans may be the ideal choice for you. We understand that there are many situations where you may need cash fast. Apply today or get in touch with our friendly team with any queries you may have. We’re always happy to answer questions about mortgages and payday loans for you.