Mortgage lenders saying no to people who had payday loans

People with payday loans are being routinely turned down for mortgages.

It is being reported that in the last 12 months, 85% of declined mortgage applications have been turned down where applicants had payday loans on their credit history.

Of these refused applications, over half (57%) had no other issues with their credit file other than the recording of a payday loan within the previous six months.

These refusals are happening even though people had deliberately cleared their payday loans before making the mortgage application.

However, whether paid off or not, the mere existence of a payday loan will have a very negative impact on a borrower’s suitability for a mortgage.

Some mortgage lenders have an outright ban on payday loan customers. It said that both G E Money and Kensington Mortgages will not lend to anyone who has taken out one payday loan in the past three months, or more than one payday loan in the previous twelve. Other lenders may follow.

The payday loan market has a current £2bn annual turnover and is used by some 1.2m people a year. Currently, some 20% of all mortgage applications are rejected.

Peter Lawrence at Lawrence Rand said: “This should be a salutary warning to anyone considering taking a payday loan. Lenders are clearly taking the view that if someone is unable to manage their finances  and uses the services of a payday loan, they are unlikely to be suitable for the major commitment of a mortgage.

At Lawrence Rand our experienced mortgage advisers will endeavour to assist anyone seeking a mortgage but people should think carefully about the possible consequences of adding a payday loan to their credit history.”