Applying for a mortgage can be challenging at the moment, despite the government’s plans to help people to buy their own homes. However, recent research has shown that people who have applied for a payday loan in the past may find it even more difficult to get the mortgage they want.

The research was undertaken by Mortgage Strategy and focused on brokers who have acted on behalf of clients looking for mortgages. They were asked whether clients who had a payday loan had been unsuccessful in getting a mortgage in the last twelve months. Almost two thirds of those who had replied said yes. 63% said payday loans had indeed been a problem, while 37% said they had not experienced this in the past year.

The danger of payday loans

It certainly presents a very sobering picture of payday loans, which have been continually in and out of the news in recent months. Many more people have taken out these loans in recent months as opposed to the same time two years ago. The Debt Advisory Centre has indicated that one in three of the new people it has seen this year are in debt to payday lenders. Unnervingly, this is 106% more than at the same time in 2011.

Furthermore, the research by Mortgage Strategy has shown that having had a payday loan is likely to result in an instant decline by a mortgage company. This holds true regardless of whether the person had a problem paying back that loan or not. Even if they took one out and repaid it early, a mortgage applicant could well find their decision to have such a loan will make it much more difficult to get a mortgage in the future.

One broker who commented on the situation said there was a great deal of negativity surrounding payday loans. Most mortgage providers gave a flat no to the idea of even considering a mortgage for such a customer. A couple of providers said they would consider applicants providing they had a good credit score. However, since these loans can harm your credit score, the outlook does not look good in this situation.

Clearly there is a need to consider the potential consequences if you are thinking of taking out a payday loan. If you have already done so and you now want to get a mortgage, it is worth being prepared for a negative response. A payday loan will be on your credit record for almost six years, so it is a long time to pay for something that could harm your ability to get a mortgage – even if you did pay it back quickly.

Payday loans can be costly – but this research has confirmed they are costly in more than one way. Even if every other aspect of your financial history is top notch, evidence of just one payday loan on your credit record could be all it takes to ruin your chances of getting a mortgage.

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