Debtors with a “perfect credit score” and a “few” purchase now, pay later transactions have been declined mortgages, brokers have instructed the Cash weblog in an unique survey.
A number of brokers instructed us a consumer’s common use of BNPL providers was an element of their rejection by a excessive road lender.
Brokers have urged lenders to alter the way in which they choose potential debtors with BNPL funds on their credit score file.
In response to our findings, two of the most important BNPL firms hit again, saying they offered modern providers and the remainder of the monetary trade ought to catch up.
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What’s BNPL – and the way do lenders get your utilization knowledge?
These schemes enable prospects to unfold out funds on purchases interest-free and are utilized by virtually 11 million Britons, in keeping with the Monetary Conduct Authority.
Klarna, PayPal’s Pay in 3 and Clearpay are three of the most well-liked within the UK. Here is how they work together with credit score businesses…
Main UK lenders use knowledge from a minimum of certainly one of these credit score reference businesses to evaluate mortgage candidates, together with financial institution statements and different checks.
Not one of the BNPL firms carry out exhausting credit score checks earlier than permitting a buyer to make use of their providers – in order that half has no impact in your credit score rating.
Nonetheless, cost knowledge is shared, which might have an effect. Missed or late funds can have a destructive impact, however BNPL firms say making funds on time can have a constructive affect.
However some brokers have seen BNPL funds, whether or not accomplished or not, having the other impact on mortgage purposes.
‘Credit score recordsdata 150 pages lengthy’
In a survey of 21 brokers commissioned with the Affiliation of Mortgage Intermediaries (AMI), a commerce physique, 67% of brokers stated BNPL had both performed a component in or brought about a consumer’s rejection by a excessive road lender.
Of these, 40% stated their consumer had “regularly” used BNPL, and 21% stated that they had used it “habitually”.
27% stated BNPL use had brought about a consumer to be positioned on a better rate of interest.
In a single case, a dealer instructed us a borrower had been declined by 4 excessive road lenders for utilizing such providers a “few times” – regardless of having a “perfect credit score”.
In one other, a consumer was rejected after a lender recognized 33 deferred Klarna funds over a 12-month interval.
Some brokers additionally instructed us that Klarna funds had left their consumer with credit score recordsdata greater than 150 pages lengthy.
Jack Tutton, a director at mortgage dealer SJ Mortgages, instructed Cash he had a consumer with 17 energetic Klarna accounts and greater than 100 accomplished funds who was unable to get a mortgage with a excessive road lender, and was positioned on a better price consequently.
His consumer had constructed up the Klarna purchases over 18 months, with the quantity borrowed as little as £11, regardless that she had the funds to pay for the merchandise in full.
“All the time people are borrowing money, lenders need to take that into account. I would be very surprised if they ignore those payments because from their perspective they are borrowing money to buy goods as low as like £11,” he stated.
“For example, if you’re a first-time buyer, and you’re living at home, then you’re spreading payments of £14 over three months. From a lender’s perspective, that’s going to be a concern.
“My consumer had one of many longest credit score reviews I’ve ever seen. And after I spoke to her about it, it was simply just because it was simple to make use of Klarna.”
He explained that some high street lenders carried out a soft credit check on borrowers, and if the number returned wasn’t high enough, they didn’t get any further in the process.
But some may ask to see bank statements, so even if a client’s BNPL habit hasn’t had a negative impact on their score, seeing several transactions from their account can raise questions.
“That is going to open up a can of worms as a result of if they can not see it in your credit score verify, after which there are a mess of transactions in your financial institution assertion, that can want some answering,” he stated.
However utilizing BNPL does not imply you’ll undoubtedly be rejected. When you use it often and sensibly, making funds on time, it should not have an impact.
One dealer reported a combined image, with one consumer rejected however a number of others utilizing BNPL schemes efficiently getting a mortgage from a excessive road lender.
In whole, 53% of the brokers we requested stated lenders must make it simpler for individuals utilizing BNPL to get a mortgage.
David Hollingworth, affiliate director at L&C, one of many nation’s largest mortgage brokers, stated BNPL use should not be the only motive a mortgage software is declined, however it might feed into the quantity of borrowing accessible because the lender takes account of the extent of dedication.
“Where it’s a very short-term agreement there may be little to no impact but borrowers who are using BNPL very frequently may find lenders taking that into account as a commitment and reducing the level of available borrowing.”
Stephanie Charman, chief govt of the AMI, stated: “With consumer use of BNPL rising, it will increasingly come on to firms’ radar, but the benefit of using a mortgage adviser means that consumers are able to discuss their current financial position early on in the process.
“The survey knowledge reveals that whereas some purposes are being initially declined, advisers are capable of finding an answer, giving that solely 27% wanted to position the shopper on a better price than initially first researched.”
What do the BNPL companies say?
Klarna argues that having several completed purchases shows good money management, making a person more attractive to lenders.
“If a mortgage dealer tells you that utilizing Klarna means you will not get a mortgage, discover a completely different dealer. Lenders have made clear they see wholesome, short-term, interest-free BNPL use as a standard a part of trendy cash administration – and when used responsibly, it may well assist, not hinder, your probabilities of getting a mortgage,” a spokesperson told Money.
To date, Clearpay has never received any queries from customers in relation to it affecting their mortgage prospects.
It told Money that BNPL has become an “on a regular basis cost” for millions of people looking for “modern monetary merchandise”.
It said 95% of transactions are paid on time, with customers using its service to manage their spending responsibly.
“It’s regarding that some sectors throughout the monetary providers trade might not perceive how BNPL works and the way shoppers are utilizing it to assist organise each day expenditure. Clearpay expects lenders to evaluate BNPL utilization in a proportionate method that’s reflective of the danger of the product and the general monetary profile of the shopper,” it said.
“We’re working exhausting with credit score reference businesses, and the broader trade, to make sure that BNPL knowledge is used pretty in credit score decisioning and we help the continued work within the sector to drive enhancements for patrons and companies.”
BNPL is currently unregulated in the UK, but this is due to change in 2026, with Clearpay hoping it will set clear compliance standards for all providers and create a consistent operating environment.
PayPal was contacted for comment on several occasions but did not respond.
What do major banks and lenders say?
Lenders do not have a unified approach to BNPL when it comes to deciding whether to approve a mortgage – so a person who is rejected by one could sail through the process with another.
Money understands that at least one major high street lender does not consider the use of BNPL as part of their approval process at all, viewing the agreements as such short-term loans.
Nationwide captures agreements that have more than six months on them as part of the application process, but it said it saw “little or no of this”.
Yorkshire Building Society said occasional BNPL use wasn’t a concern in isolation, but it “might contribute to an total view if different indicators of monetary stress are evident”.
“No choice is made in isolation, and consideration is given to bank card utilization and loans – together with BNPL – to grasp spending habits and compensation historical past,” it said.
Santander treats pending BNPL payments like an outstanding debt, so while it doesn’t affect customers’ ability to get accepted, it can limit the amount it is able to lend to them.
Leeds Building Society doesn’t treat BNPL any differently to other financial commitments. It is built into its affordability model to make sure a customer’s mortgage is affordable when the BNPL balance is due.
NatWest doesn’t have any specific guidance to BNPL agreements, but does consider them as committed expenditure to make sure a customer’s mortgage is affordable.
Skipton Building Society stressed “accountable administration” of all forms of credit, including BNPL, was important when applying for a mortgage.
Coventry Building Society said BNPL shouldn’t do any harm if customers keep up with repayments: “So selecting up one or two issues on BNPL won’t make an excessive amount of distinction, but when it turns into a bit extra of a behavior and people repayments rack up, it might have an effect on your probabilities of getting a sufficiently big mortgage to purchase the property you need.”
It warned, however, that BNPL could be an issue particularly for first-time buyers who were already stretched with mortgage borrowing.
HSBC lends based on the affordability and circumstances of each individual, but encourages applicants to understand their financial commitments before applying.
Already used BNPL? Here’s what you can do to boost your chances of getting your mortgage approved
As we’ve explained, using BNPL isn’t a surefire way to get rejected, but if you’re concerned about your mortgage approval chances, there are some ways to boost them.
Hollingworth said you should check your credit report with the big reference agencies and flag any negative records with your adviser: “If there have been missed funds attempt to get these updated and put issues again on monitor as quickly as potential. The longer that the monitor report is evident earlier than making the mortgage software the higher.”
Mortgage lenders can view well-conducted credit arrangements positively as it shows that credit can be managed, but it makes sense to review your monthly budgeting.
“If there are outgoings that may be diminished or new credit score preparations that are not mandatory, then it might assist to fulfill the mortgage lender’s affordability evaluation. Once more, your mortgage adviser will probably be in a position that will help you perceive what you might be able to borrow,” he added.
Bettering your credit score rating may enhance your probabilities of being accredited and there are some easy methods to do that….
