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Payday loans risk to mortgage applications
Taking out payday loans could `endanger people’s chances of getting a mortgage whether or not they had difficulties repaying the cash, according to information received by the BBC.
Nearly two-thirds of brokers contacted by trade publication Mortgage Strategy for Newsnight had a client turned down for a mortgage after payday loans.
A record of a loan will remain on a credit record for nearly six years.
Business Secretary Vince Cable said borrowers would receive warnings under future advertising regulation changes.
Payday loans affect mortgage applications
According to evidence gathered by Newsnight, many mortgage applications have been instantly declined and credit scores adversely affected after people took out payday loans.
Out of the 279 replies received by Mortgage Strategy, 184 brokers said they had clients in such a position.
One mortgage advisor who advised a couple on getting a mortgage under the government’s Help to Buy scheme but had taken out multiple payday loans said “I knew it was going to be a problem, but I was a bit shocked by the response I got because apart from one or two who said they could be accepted subject to a credit score – which is a polite way of saying it probably won’t work – most of them were very negative and said it would be an instant decline.
“That was regardless of their income, the conduct of their accounts and everything else… these were major High Street lenders.”
The trade body that represents payday lenders, the Consumer Finance Association, said it would look at whether customers should be warned about the consequences before they take out a payday loan.
Mr Cable told Newsnight that future advertising will also require payday loan companies to make clear that borrowers have to seek debt advice.
“If they seek debt advice they will know the risk of imperilling their credit status,” he said.
Post courtesy of BBC