One of the country’s top mortgage broking firms has warned of the dangers that payday loans could have for anyone making a mortgage application.
Simon Collins of John Charcol brokers says the firm have seen a noticeable increase in the number of mortgage applicants either being rejected for a loan or finding their offer significantly reduced because they have taken out a payday loan.
Staggering
“On the face of it payday loans are pretty straightforward with a staggering number of people taking them, but beware the law of unintended consequences – there is a danger that lurks within. Mortgage lenders hate payday loans,” he says.
“As far as most mortgage lenders are concerned, if you’ve taken a payday loan then this is irrefutable proof that you are living beyond your means. End of discussion,” he adds.
Warned
The payday loan industry is under close scrutiny by the Financial Conduct Authority who will assume the powers of regulator over that sector of the financial sector in April of next year. The firms have already been warned that stricter regulation is on the way.
While having taken a payday loan will not kill off any chance of you getting a mortgage, Mr Collins maintains it will make it more difficult.
Rules out
He says: “Let’s be clear. A recent payday loan on your credit history doesn’t mean that you can’t get a mortgage, but it almost certainly rules out most of the major high street lenders. If you get a mortgage elsewhere, the rate is unlikely to be particularly competitive.
“A recent payday loan is a massive negative in the eyes mortgage underwriters, but one that no-one warns borrowers about.”
Discriminate
The Financial Ombudsman Service (FOS) says it has also seen evidence that lenders do discriminate against payday loan borrowers.
A spokesman says: “The number of complaints we receive about payday loans is relatively low, but we have had a number of inquiries from consumers who have been told by their lender that previous payday loans they have taken out have, and will continue to have, a detrimental impact on their credit rating.”
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