Recent headlines suggest that users of Buy Now Pay Later (BNPL) schemes like Klarna and Clearpay may be at risk of having their mortgage application declined, due to the credit agreements being factored into the mortgage affordability assessment.
Cassie Stephenson, director of mortgages at Mojo Mortgages, explains how BNPL credit agreements could affect your chances of securing a mortgage.
“Lenders continually update their reporting and credit checks to ensure borrowers have the means available to secure a mortgage and while schemes such as Klarna are often used for convenience they could trigger automated red flags for some lenders. However, it is an area that’s changing all the time and if balances are paid on time, you shouldn’t currently have too many problems when it comes to your application.
“Thinking back to payday loans - this is an area that has changed mortgage eligibility significantly in recent years. Taking out one of these loans wasn’t a problem for many lenders a few years ago, but if you can take one out now it’s likely you will need specialist help. This is of course a very different case to Buy Now Pay Later options but highlights how lenders can and will change their minds on the criteria used to judge affordability.
“For those looking to apply for a mortgage over the coming months and years, it is important however to keep tabs on how lenders judge eligibility - particularly as BNPL options continue to grow in terms of their scale and usage. The main thing to remember when contemplating a purchase in the run up to your mortgage application is deciding whether you really need it right now and how quick will it take you to pay off any balance from borrowing?”
Taking the above into account, the recent ‘Shop Now, Stress Later’ report from money.co.uk looking into the attitudes of consumers regarding the accessibility of BNPL schemes makes for a stark warning regarding young Britons and any potential plans for purchasing property in the future they might have:
The study of more than 2000 shoppers* found that:
• One in five (19%) shoppers admit BNPL is a way to buy now, and worry later
• One in eight (13%) of 18-24 year olds say social media influencers encouraged their decision to use BNPL
• 18-24 year olds are more likely to use BNPL schemes (54%) than a credit card (49%)
• One in six (16%) say BNPL schemes led them to purchase more than they could afford
• Average BNPL users owe £244.37 and take nine months to repay
• Just one in twelve (8%) are concerned about the potential impact that BNPL schemes could have on their credit scores
• On average, BNPL platforms expect payment after 49 days but the average consumer said it takes 261 days to pay. That’s 186 extra days in debt