Mortgages after Payday Loans
Finding yourself in a financial pinch might have led you to applying for a payday loan. It’s often the case that taking such a loan is down to covering the cost of an unexpected & extreme situation such as an emergency household repair. Whatever the case, although they may be necessary at the time they’re certainly not ideal given how they generally entail sky-high interest rates. For this reason it’s a commonly held belief that having even used one payday loan in the past critically harms your chances of securing a mortgage loan due to how strict lenders can be regarding financial history.
There are some misconceptions surrounding this topic, however. That’s why our expert mortgage brokers would like to clear up any of the doubts you may have by showing you that, with the right help, there’s a mortgage solution for everyone.
We at The Mortgage Genie have thorough knowledge of specialised lenders which has allowed us to find a number of spots on the property ladder for people who have payday loans on their credit report. If you wish to become a likewise happy homeowner then call us today at 01915809890. In advance of any progress with the mortgage front, we suggest reviewing your Credit File. The easiest way to do this is by using our free tool – Check My File. It’s free for the first 30 days, but you can cancel at any time once you’ve downloaded your report.
In this guide you’ll find everything you need to know about mortgages after payday loans and we ensure that, after reading it, you’ll walk away feeling a lot more confident about your situation. We’ll answer the following questions:
- Can I get a mortgage after using payday loans?
- Why don’t mortgage lenders like payday loans?
- How do payday loans affect my mortgage application?
- How long do payday loans stay on your credit report?
- What type of mortgage can I get after payday loans?
- Should I wait before applying for a mortgage after payday loans?
Can I get a mortgage after using payday loans?
Yes, it is entirely possible to secure a mortgage loan after using payday loans. It is, however, important to be aware that it’s considerably more difficult than if you hadn’t. As well as this, your options are narrower and aren’t open to the same amount of flexibility that is afforded to borrowers who’ve never used a payday loan.
But don’t let this dishearten you because, as is the case with all mortgages, each lender measures your specific situation against their own individual set of criteria. For example, one lender may reject your mortgage application based on a payday loan you made recently or even a few years ago, whereas another may show lenience based upon other factors that relate to your personal situation.
The specific factors that specialist lenders consider in their assessment typically consist of: how recent your last payday loan was, how many payday loans you’ve taken out in the past, how much you borrowed exactly, and how long it took you to settle the loan. Going off this, the lender will then decide if they’re willing to lend to you alongside the value of what they’re willing to lend.
It’s for these reasons that it’s imperative you seek guidance from an expert mortgage broker who knows which lenders are best suited to your individual situation so that you’re not left feeling hopeless & confused after being refused.
Why don’t mortgage lenders like payday loans?"
Fundamentally, mortgage lenders don’t like payday loans because they signal that you’ve had financial troubles in the past. And therefore, may not have the money management skills required to keep up with mortgage repayments. Your reasoning behind taking a payday loan out may, of course, not have been down to this, but a lot of lenders tend to see these things as inherently problematic.
It’s plain to see why a lender might be sceptical of your having a financial basis strong enough to support a mortgage loan if you have a history of relying on loans to make payments. It causes them to see you as ‘high risk’, especially so if you’re a first-time buyer. Again though, it all depends on finding the right mortgage lender for you.
You might have seen some sources say that a history of successfully paying payday loans on time indicates financial competency and, as such, works in favour of your mortgage application. We’d like to categorically state that this is not the case and is a myth.
How do payday loans affect my mortgage application?
Payday loans affect your mortgage application by significantly limiting your options in a varied sense. As we’ve already mentioned, the scope of lenders that are available to you isn’t very wide, consequently meaning that you’re restricted to the interest rates that those specific lenders offer. Whether fixed, variable, or flexible rate, you don’t have a lot of say in what your repayment terms are, relatively.
Another caveat is that since lenders will consider you as a high-risk client there’s a chance you’ll be charged higher mortgage fees and charges than usual. This isn’t a certainty, however, and is also dependent on in which light the typical credit report checks are seen, your annual income, and whether you have either had a court county judgement, adverse credit or an IVA. Having either of these latter factors alongside a history of payday loans works exponentially to reduce your chances of being accepted for a mortgage loan, yet still, does not rule out the possibility.
How long do payday loans stay on your credit report?
As with any loan payment you take, whether it’s repaid, late, or defaulted, a payday loan will stay on your credit report for 6 years and are each of them regarded as equal by credit reference agencies.
It’s crucial to keep in mind here the significance of how long ago the loan occurred. For instance, a lender is a lot more likely to allow you to borrow if you took a payday loan 5 years ago rather than half a year ago, say. The further out of sight the loan is, the better. Still, some lenders will flat out reject your application besides the timeline, bringing to mind again the importance of having a mortgage broker on your side.
What type of mortgage can I get after payday loans?
As is the case with your choice of lenders, the mortgage types that are accessible to you are likewise restricted after using payday loans. One of the primary elements that will be carefully considered in your mortgage application is your loan-to-value (LTV) ratio. I.e., what percentage of the property’s value you want to borrow. Higher % LTV mortgages are regarded as ‘high risk’ because the lender provides the borrower with a larger loan, meaning it’s more of an investment for them.
Stack this on top of the fact that a person has also used payday loans, the chances they’ll get accepted for a 95% LTV mortgage or 100% LTV mortgage, for instance, are relatively slim. This does not go to say that there isn’t a chance, however. Every applicant is considered on a personal basis, therefore, factors like your household income & the sum of your mortgage deposit will play an important role here.
As a general rule, a lender is typically willing to loan you an amount that is 4x your annual income. So, if you make £30,000 a year then you could secure a mortgage loan of around £120,000 for a property. And the threshold for the majority of lenders is that they require a deposit of at least 10% which, in this context, would be £12,000. If you’re a first-time buyer who is struggling to raise a deposit then you’ll definitely benefit from the Help to Buy scheme.
Should I wait before applying for a mortgage with payday loans?
As you now know, the longer ago you used a payday loan, the more likely it is that you’ll successfully get a mortgage loan. The obvious implication here is that the longer you wait before applying, the easier and more straightforward your application will be, the notable cutoff point being 6 years. Moreover, sitting back for a decent amount of time will also allow you to save for a bigger deposit which will further increase your chances as a prospective homeowner.
That being said, if you truly desire to get a mortgage loan and realistically cannot wait then there are a range of options out there for you, it’s certainly not an impossibility, as we hope that this guide has helped to elucidate. If you think that your credit score is an insurmountable obstacle it’s important to keep in mind that the right people can aid you in getting over it.
Here at The Mortgage Genie we have a comprehensive understanding on how to get a mortgage and are committed to helping people secure loans in whatever personal situation they may be. We sincerely hope that this post has cleared up any of the doubts you might have had surrounding mortgages after payday loans and answered all of your queries and concerns.
Every day we help a growing number of people actualise their housing dreams by assisting them in finding the mortgage deal that’s right for them and walking them through every step of the process. If you need a team of expert mortgage brokers who have a deep and thorough knowledge then you’ve come to the right place. Get in touch by calling us today at 033 33 44 33 72 if you have any further questions or want to start down on your way to owning the property of your dreams! And why not see how much you could borrow up to right now by using our mortgage calculator?
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.