If you’ve using loans from short-term lenders, such as payday loans, this can be bad news if you’re trying to get a mortgage. Any loans you’ve taken on a basis for less than 12 months is classed as a short-term loan and it can raise warning signs for mortgage lenders.
Why are payday loans bad for mortgages?
When you apply for a mortgage, the lender you’ve applied to will carry out assessments on your financial profile. There’s more to a mortgage assessment than just doing a credit check. You can have a perfect credit score and still be declined a mortgage based on other assessments and using payday loans is one of them.
If you’ve used payday loans, lenders understandably make the assumption that you’ve been troubled from a financial viewpoint. If you’ve had to take a short-term loan then the chances are you’ve run short financially. As a result, lenders start to assume that repaying a mortgage may cause further financial strain. Lenders what to be sure that the person they’re lending to is financially stable and that the mortgage will be repaid on time.
Using payday loans often have extremely high interest rates, which can cause finances to deplete very fast. Again, this doesn’t help lenders into suggesting that you’re a credible borrower.
What If I’ve paid the payday loans back on time?
Even if you’ve paid every payday loan back on time, it has no effect on how lenders perceive you. Yes you credit score can improve, but as mentioned, lenders look for more than just a good credit score.
Passing a credit check can be good for getting a decision in principle, but when lenders carry out deeper checks, which they will, then this is where problems can arise.
Is it still possible to get a mortgage after using a payday loans?
Although difficult, it is still possible to get a mortgage after using payday loans. If you approach a high street lender, then you may be declined when a thorough check is made on your application. If you use a mortgage broker, this will open up access to every UK lender. Mortgage brokers can then look at your financial circumstances prior to approaching lenders. This is very beneficial as brokers can approach the right lenders and structure your application accordingly.
If you need a mortgage and have used payday loans, then do make contact with an experienced mortgage broker. Make sure your mortgage broker isn’t tied to one lender and has access to the whole market. Be honest and upfront with your broker about your payday loan use so that they can approach the most suitable lenders from the word go.
Getting a mortgage with past credit issues?
As every case is different, there isn’t one answer that fits all. Credit issues come in all different shapes and sizes. Having a missed payment isn’t as severe as being declared bankrupt. The timing of your credit issues also plays a part. For instance, anything that took place over six years ago is likely not to appear on your credit file. In comparison, any recent credit issues can cause problems.
Nonetheless, there are specialist lenders that specialise in mortgages for borrowers with credit issues. The majority of specialist lenders are only accessible through mortgage brokers. If you applied for a mortgage with a high street bank and have credit issues, then the chances are you’ll be declined.
Finding a mortgage broker
If you’ve used payday loans and need a mortgage, then it’s highly likely you’ll need a mortgage broker. Not only that, but you’ll need to ensure your mortgage broker has experience in mortgages after payday loan use and possibly adverse credit if you have any.
Thankfully, the team at Expert Mortgage Advisor specialise in mortgages after using payday loans and mortgages with adverse credit. All the mortgage advisors have a wealth of experience in this field and can provide instant advice.
Martin Alexander is a leading mortgage broker for Expert Mortgage Advisor and he frequently writes about mortgages on their website.