Content Writer
Mortgage Advisor & Director
If you’ve ever used a payday loan, you might be wondering whether it will affect your chances of getting a mortgage. Payday loans are often seen negatively by lenders, even if they were repaid on time, because they can signal financial instability.
Here, we’ll explain whether you can get a mortgage if you’ve had a payday loan, how it could impact your application, which lenders may consider you, and how to improve your chances of getting a mortgage with the best rates.
Can you get a mortgage if you’ve had a payday loan?
Yes, you can still get a mortgage if you’ve had a payday loan. How recently you used one and whether it was repaid on time make a big difference. Here’s how the recency of your payday loan might impact your mortgage application:
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Within 12 months: Most high street lenders and banks will decline a mortgage application if a payday loan shows up on your recent credit history.
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1 to 2 years ago: Your options improve slightly, but many lenders still take a cautious approach. You may need to work with a specialist lender.
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Over 2 years ago: For many lenders, old payday loans that have been repaid on time are less of a barrier, though it may still reduce your pool of available lenders.
The good news is that there are mortgage lenders who accept payday loans, even recent ones, especially if it was a one-off and you can show financial stability since.
How does a payday loan affect your mortgage application?
Here are the most important areas that can influence your ability to get a mortgage in the eyes of lenders if you’ve used payday loans:
Reasons payday loans impact your application
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Timing: Payday loans taken out within the last 12 months are usually viewed most negatively.
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Repayment history: Missed or late repayments for payday loans are particularly damaging.
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Frequency: Multiple payday loans suggest a pattern of ongoing financial stress and poor money management.
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Lender policies: Some high street banks have strict criteria and may decline mortgage applications outright.
Knock-on effects of payday loans on your application
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Higher deposits: You may be asked to provide a larger deposit, such as 15% to 25%, instead of the standard 5% to 10%.
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Reduced lenders: Fewer mainstream lenders will be available, meaning a smaller pool of options.
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Higher interest rates: Certain lenders may use higher rates to offset some of the perceived added risk, or you may need to approach a specialist lender.
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More paperwork: Lenders may request additional evidence and documents to demonstrate financial stability, which could include more bank statements, payslips, and proof of income.
Which lenders will accept payday loans in your history?
Approximately 50 UK lenders are willing to consider mortgage applications from people who have used payday loans. And, a large portion of these are only accessible through a broker. However, the exact number of lenders available will depend on your specific payday loan history and the strength of the rest of your application.
Here are some examples of popular mainstream UK mortgage lenders and their attitude towards payday loan mortgage applicants:
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Halifax mortgage payday loan policy: Although Halifax has no official policy, it typically views payday loans in an unfavourable light. They may be willing to accept applicants on a case-by-case basis, but it’s best to speak with a broker first to avoid an unnecessary rejection by Halifax.
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NatWest mortgage payday loan policy: Similarly, NatWest doesn’t have a specified policy, but the impact of these loans could be reflected elsewhere in your affordability and credit checks. Again, advice from a broker is sensible if you want to avoid having your mortgage declined by NatWest.
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Bank of Ireland (UK) payday loan policy: Although Bank of Ireland usually won’t accept applicants who’ve taken out a payday loan in the last year, they will consider applications where the loan was over a year ago. However, it’s evaluated on an individual basis, and the rest of your application will be reviewed in greater detail.
The best way to discover all your realistic lending options is to speak with an experienced mortgage advisor. However, if you want to compare all the latest rates to get an idea about how much you might pay, you can use our free comparison tool to see deals from 90+ UK lenders, including specialist providers:
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Tips for getting a mortgage after a payday loan
Here are some straightforward tips and strategies to use if you want to try to get a mortgage after using a payday loan:
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Get expert support: Navigating this area is extremely challenging without guidance. Skilled mortgage advisors know all the lenders inside, meaning they can introduce you to the most appropriate lender straight away.
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Avoid multiple applications: It’s crucial to avoid making too many mortgage applications, especially if you’ve been declined a mortgage already. Take a step back and have a chat with an expert advisor before you make any more moves.
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Strengthen your profile: Improve your credit score, reduce existing debts (which also benefits your debt-to-income ratio), and ensure there are no mistakes or areas overlooked with your application.
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Show stability: Aim to show regular income, long-term employment, no sporadic spending sprees, minimal credit card borrowing (lower your credit utilisation) and generally aim to present your finances in a stable and predictable format.
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Delay your application: This isn’t always realistic, but if you’re in a position to wait, it could be beneficial to wait until at least a year after using your last payday loan before applying for a mortgage.
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Build a larger deposit: Although it won’t always help, building a large deposit can make a difference with some lenders. If you need to wait slightly longer to apply, it can give you a bit more time to save.
Begin your mortgage journey
Can you remortgage after a payday loan?
Yes, you can remortgage after a payday loan, but it can be more challenging to get the best deal. Most of the same rules apply as with new applications. If the payday loan was more recent, you may need to approach specialist lenders or wait until more time has passed before remortaging.
If the payday loan was over one or two years ago, and your finances are otherwise strong, more lenders will consider your remortgage application, which will increase your chances of getting the best rates and deal available.
Why choose Teito for your payday loan mortgage?
Getting a mortgage with a past payday loan can be more difficult, but with the right advice, it’s still possible. That’s where we can help.
Our brokers have plenty of experience helping people like you, who’ve previously used payday loans, to get a mortgage. Here’s why people across the UK trust us to assist with payday loan mortgage applications:
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Compare the latest mortgage rates online for free
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Our brokers are 5-star rated on leading review platforms
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Free initial chat with no obligation to proceed further
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Access to specialist, flexible mortgage lenders
If you’re ready to compare rates or want tailored advice from a payday loan mortgage specialist, you can get started here.
FAQs
Yes, payday loans appear on your credit file and can lower your score, but they can be particularly damaging if any repayments were late or missed.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.