Get a payday loan, lose a house

Take out a payday loan, and you can all but forget about getting a mortgage.

We aren't quite as down on payday lenders as most people - we recognise the brilliant simplicity of Wonga's business model, for example, and we totally understand why people use it. See my last column on the matter here.

However, that doesn't mean we entirely approve. We wish the loans weren't so expensive, and we have sympathy with FCA chief executive Martin Wheatley's plans to limit the number of loan rollovers allowed, and so on.

But there is one more negative we hadn't thought of. It is, says Simon Collins of mortgage adviser John Charcol, this: "as far as most mortgage lenders are concerned, if you've taken a payday loan, then this is irrefutable proof that you are living beyond your means; end of discussion". So they won't give you a loan.

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Take out a payday loan (or much worse, let one roll over) and you might well find that you "seriously damaged your chances of getting any mortgage". Clearly, if you are having trouble getting a mortgage, you will need the help of a good broker to get you what you need.

But there is truth in the idea that mortgage lenders hate to see payday loans on a credit record. Last year, lender GE Money announced that "as a responsible lender in a challenging market, we review a range of data to make prudent mortgage lending decisions. Payday loan data is one of many items included in this review, and if a mortgage applicant has a current, or had a recent, payday loan, it is unlikely that we will consider their mortgage application."

Kensington Mortgages has said something similar, and while a payday loan is not always a dealbreaker, a poll of Mortgage Strategy Online readers late last year found that over 40% had had a client turned down for a mortgage because of a payday loan.

Something to think about before you take out a payday loan to pay for "anniversaries and birthdays" as suggested by Sunny Payday Loans. It could end up costing rather more than you think however clear the initial charges might look.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.