First Time Buyer Mortgage for High Earner Despite Adverse Credit from Payday Loans

A payday loan might seem like a good solution to getting through the month without going into your overdraft or having to cut back your spending - as long as you know you can afford to pay it back in the following month.

However, it’s vital to understand the risks of this type of short term finance and to know how your bank will view this on your mortgage application.

Most mortgage lenders will check your credit history for any payday loans you’ve held in the last 2 years, and they'll likely reject your application if they find any.

In this case, our client had taken out 19 payday loans in the last 4 years.

The Scenario

Our client was a successful solicitor with high earnings of £175k per year salary and bonuses on top.

They were looking to purchase a new build property in London for £635k at a 90% Loan to Value (meaning she had a 10% deposit to put down).

However, despite their earnings comfortably qualifying them for a loan at this size (well over the 4.5 times salary baseline), they were rejected by every lender they approached.

Why?

A few years ago, our client read an advice article recommending repaying your minimum credit card balance each month with a payday loan, as it is good for your credit score.

While it is good to use a credit card and repay the balance promptly each month to build your credit score, using a payday loan is not a great idea.

Banks and mortgage lenders see payday loans as an immediate red flag on your mortgage application.

A payday loan on your credit history suggests that your expenditure outweighs your income, regardless of how much you bring in. It indicates that you cannot keep up with your mortgage repayments.

The Solution

We took our client’s application to a lender more suited to such niche situations.

Our broker spent time with the underwriters to thoroughly review our clients’ finances, providing additional information and context around the payday loans, and offsetting her high expenditure with her high income.

We could prove that:

• Our client was on a good career trajectory
• They had industry qualifications under their belt, making them re-hireable and their high-income more sustainable
• And they had a good history of bonuses, indicating strong performance and the likelihood of even higher earnings further down the line

Despite the case's complexity, our specialist mortgage broker was able to secure a mortgage in just 3 weeks – an exceptional turnaround even for a standard mortgage case - and our client achieved the full loan value they needed to secure their new home purchase.