Is the use of buy now and pay later being considered by mortgage lenders?

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Potential buyers looking to take out a mortgage warned to use Buy-It-Now, Pay-On-Pay programs after it was revealed that four major lenders ask borrowers about their use when asking for decisions of principle.

Buy Now, Pay Later allows shoppers to defer or split payments when shopping online. Some of the biggest vendors in the market include Clearpay, Laybuy, and Klarna.

Use of these programs has increased during the pandemic as more and more of us shop online.

However, the Which? warned that many users did not realize that some mortgage lenders see BNPL as a type of debt and treat it the same as a loan or credit card.

Close scrutiny: Users of popular buy now, pay later apps like Afterpay and Klarna may need to disclose when applying for a mortgage – and lenders might view this as a risk

Who? researchers requested an online mortgage policy decision from 10 of the UK’s largest lenders to find out how well borrowers’ BNPL activity was being scrutinized.

Who? reported that four lenders – Barclays, Halifax, Nationwide and TSB – have specifically requested details of BNPL’s deals as well as other credit commitments such as loans and credit cards.

They usually asked for the amount outstanding from each arrangement and whether the debt would be fully paid off before the mortgage began.

Conversely, five lenders – HSBC, NatWest, Santander, Virgin Money and Yorkshire Building Society – made no mention of BNPL in their online decision forms.

Coventry Building Society is not accepting online applications, but confirmed it did not ask questions about BNPL when clients requested a policy decision.

Even if they do not ask for these details when a policy decision is requested, the information will be revealed when a formal request is submitted later in the mortgage process.

Submitting a formal mortgage application involves your lender performing a “hard” credit check, which involves accessing your credit report and requesting bank statements to make sure your finances match your. demand.

While some BNPL providers, including Klarna and Clearpay, leave no trace of your borrowing on your credit report, others like Laybuy and OpenPay do.

Who?  researchers filled out mortgage applications online to see when BNPL's loans were clawed back.  It found that four lenders had requested information at the stage of the decision in principle

Who? researchers filled out mortgage applications online to see when BNPL’s loans were clawed back. It found that four lenders had requested information at the stage of the decision in principle

And even if it’s not present on your credit report, lenders can collect payments to BNPL providers on bank statements.

Several confirmed to which? that they researched BNPL’s commitments when analyzing bank statements.

The opinion of mortgage lenders on the loan will also depend on the length of the credit agreement and whether or not the customer pays interest.

While most programs offer to delay small payments for 30 days or up to six weeks without interest, some allow customers to combine these offers with longer borrowing options on large items that charge interest.

Monzo, for example, recently launched Flex, which offers a limit of up to £ 3,000 and the ability to split the cost of buying over £ 30 into three installments without interest, or for a longer period of six. to 12 payments at an APR of 19%.

The lenders said to what? that they have classified this type of loan among the more traditional types of credit.

Barclays took the more stringent view on BNPL, saying all active BNPL deals were considered outstanding financial commitments, like loans or credit cards.

Nationwide and Coventry Building Society said they only looked at formal BNPL agreements that looked like a traditional interest-bearing funding agreement, and those that were more than six months old, when calculating affordability.

Who? said: “A £ 50 jacket that you choose to defer payment for 30 days, interest free, is not likely to defeat your mortgage, as it will most likely be paid off when your mortgage is granted.

“However, a £ 500 washing machine that you chose to split into six payments would be a debt liability that will affect the amount of money available each month and therefore should be taken more seriously.”

Could BNPL Really Lock Your Mortgage?

Depending on the amount borrowed by BNPL by a client in relation to his income, the number of BNPL agreements he has and the expected repayment period, the amount he can borrow may be reduced or his request being totally rejected.

While BNPL deals, by their very nature, may not have a great impact on affordability, that does not take away the opportunity for lenders to do additional research.

Mortgage Broker David Hollingworth

Ultimately, the lender will have to decide whether or not the customer is, in their opinion, too dependent on short-term credit.

However, which one? was clear that BNPL had not been blacklisted by lenders. Instead, he said, they used it as one of many variables to assess a client’s financial situation.

L&C Mortgage Broker David Hollingworth said: “While BNPL deals, by their very nature, may not have a big impact on affordability, this does not take away the opportunity for lenders to do additional research. on something on a bank statement.

“If a borrower uses BNPL on a very regular basis and at a higher volume, this may require additional justification from the underwriter. “

What can BNPL users do to maximize their chances of getting a mortgage?

Who? provided the following tips on how BNPL clients could improve their chances of getting the go-ahead for a mortgage application. It said:

Reducing BNPL Borrowing Could Be Key to Mortgage Acceptance

Reducing BNPL Borrowing Could Be Key to Mortgage Acceptance

A nice BNPL loan If you can avoid making BNPL deals before applying for a mortgage, do so. Who did Barclays tell? he advises all potential homeowners not to enter into new credit agreements before applying for a mortgage, and to ensure that all short-term debts are paid off before submitting a mortgage application.

Track refunds Keep control of your existing BNPL commitments and your overall debt level. If you have a credit card, overdraft, loan, and various BNPL liabilities, make sure you can afford to pay them off.

Give all the information you can Be honest about your policy decision if it concerns BNPL expenses, or if you are using a mortgage broker, be sure to let them know of any BNPL commitments early in the process. By giving your broker the full picture, you can increase your chances of finding a suitable lender and getting mortgage approval.

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