Mortgages After Using Payday Loans

Can I get a mortgage after a payday loan?

Yes, it's possible to get a mortgage after a payday loan! But it’ll be more difficult than if you hadn’t used one. Payday loans affect how likely a lot of lenders will be to consider you, especially if you have any other issues on your credit file.

Lenders tend not to like seeing payday loans on an applicant’s credit file because it looks like you’ve had financial issues in the past, and therefore might not be able to keep up with mortgage repayments if they lend to you. 

But just because some of the mainstream lenders will refuse you doesn’t mean all lenders will. A specialist mortgage lender is more likely to consider your individual situation overall, without using a computerised checklist, rather than just turn you down on the spot. 

Specialist lenders will usually want to know: 

• When you took out the loan(s)

• How much you borrowed

• How many times you’ve used payday loans

• How quickly you paid them back

Using this information, they’ll decide whether they’re willing to lend to you. Quite often, they’ll look at how long ago the last payday loan was taken out. If it was recent, they’re less likely to accept you for a mortgage. But if it was years ago, that will work in your favour.

How will a payday loan affect my mortgage application?

On their own, payday loans aren’t actually a bad credit issue and don’t reduce your credit rating if you’ve paid them back on time. The problem when it comes to mortgages is that lenders see payday loans as a red flag, and that’s why it can be more difficult. 

Mortgage lenders carry out a detailed analysis of your credit report before they agree to give you a mortgage, and will look for bigger credit issues such as CCJs, IVAs and bankruptcies. If your credit report is otherwise healthy, it’ll be easier to get accepted. 

If your most recent payday loan was more than six years ago and you have no other credit issues, you’ll have far more mortgage options available to you than if you have lots of recent ones on your credit file. 

When it comes to getting a mortgage, it’s all about which lender you go to. Working with a specialist mortgage broker (like us!) who has experience getting mortgages for people who’ve used payday loans will really improve your chances.

Will multiple payday loans affect my mortgage application?

The more payday loans you have on your credit file, the trickier it’ll be to get accepted for a mortgage. Taking out lots of payday loans can signal to a mortgage lender that you struggle to make ends meet, and that you’re more likely to default on your mortgage payments. 

If your multiple loans were a long time ago, your chances are better. But if you’ve had lots of recent payday loans, it’ll be more difficult. If you’re worried about your payday loan mortgage chances, speak to one of our Mortgage Experts who can look at your options.  

How long can lenders see a previous payday loan?

Lenders will be able to see any payday loans and other borrowings on your credit history for six years. Some lenders will still ask you if you’ve ever taken out a payday loan, even if it’s disappeared from your file. If this happens, you should always be honest about it - it’ll save you time and money in the long run! 

With any financial issues, it’s best to face them head on. Finding out your credit score and reviewing your report will give you a great place to start from. You can get a free copy of your credit file with a trial of Checkmyfile** (usually £14.99 a month). Once you have your report, you can then check for any errors and see where you can improve.

**When you click through to our affiliate links, we may earn a small commission at no extra cost to you. We only recommend sites we trust and believe in.

What are my options if I’ve been declined a mortgage due to a payday loan?

Being refused a mortgage can be frustrating and demoralising. It can be really hard to know what to do next, or where to turn. It’s tempting to apply to another lender after being refused a loan, but too many unsuccessful mortgage applications can negatively affect your credit report.

It’s common that mortgage applications are rejected by mainstream lenders when there is a history of payday loans, especially if they were recent. But just because you’ve been rejected, it doesn’t mean you won't get a mortgage somewhere else. 

If your bank, building society or a mortgage broker has declined your mortgage application:

• Talk to a specialist mortgage broker who has a proven track record of helping people with a payday loan history (like us!).

• Make sure any outstanding payday loans are paid before your application. 

• If possible, save up a good-sized deposit because lenders will often be unwilling to approve mortgages with a higher loan-to-value (LTV).

How much can you borrow for a mortgage after a payday loan?

How much you’ll be able to borrow on a mortgage after using payday loans will totally depend on a range of key factors, including:

• Affordability: A lender will assess how much they feel you can comfortably afford. This involves looking at both your annual income and regular outgoings (debts, monthly bills etc.) before deciding how much you can borrow. 

• Credit history: If you have an excellent credit rating and no history of payday loans, this would mean more mortgage lenders would be willing to consider your application. If you have any bad credit issues showing on your record, this will reduce the number of lenders available to you and could indirectly affect how much you can borrow.

• The loan-to-value (LTV): The LTV means how much a lender is willing to lend you as a percentage of the total value of the property. The highest LTV would be 95%, meaning you would only require a 5% deposit. If you have bad credit or a history of payday loans, lenders will likely require a higher deposit.

• Mortgage rates and fees: As there may be less lenders willing to offer you a mortgage if you’ve used a payday loan in the past, this could mean having to pay higher a higher interest rate and upfront fees, meaning your repayments will be higher. As a result, the amount you borrow might need to be lower to remain affordable.

Read more in our Guide: What Mortgage Lenders Look For in Mortgage Applicants

How to improve your credit score after a payday loan

Here are some top tips for improving your credit score if you want to apply for a mortgage with a history of payday loans:

• Pay off any outstanding debt in full (including credit cards, loans, and similar). If that’s not possible, just pay as much as you can.

• Make sure you’re listed on the electoral roll*. 

• Consider reviewing the number of credit cards and accounts you’ve got open. Even if they don’t have outstanding balances. If they’re no longer being used, close them down.

• Use your available credit in a sensible way. For example, make small purchases on your credit card and pay off the balance in full each month. That can help build your score because it shows that you’re making repayments on time.

Read more tips on boosting your credit rating before applying for a mortgage.