Missing the payday point
Posted on 16 October 2013
You can’t turn on your TV these days without being offered a short term loan. Their main purpose is to tide you over to pay day, often because of a wholly genuine and unexpected bill. On the face of it at least, payday loans are pretty straightforward (despite the astronomical APR), with a staggering number of people taking them, but beware the law of unintended consequences; there is a danger that lurks within.
Payday loans lenders have now been warned by FCA chief executive Martin Wheatley that he is putting them on notice that tougher regulation is coming when the FCA takes over regulation of consumer credit on 1 April 2014. However having looked at the proposals there’s one huge glaring omission. Mortgage lenders hate payday loans
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. It’s the biggest negative point and one that no one warns borrowers about. Now, obviously, Wonga and the other payday companies aren’t going to tell you that taking out one of their loans, can seriously damage your chances of getting a top mortgage rate, and lenders are strangely hesitant (at least publicly) about warning would-be borrowers of the perils of the pay day loan.
The regulator is looking to introduce mandatory affordability checks, a restriction on continuous payment authorities, and limiting the number of loan roll-overs to two. They also want tighter restrictions on what payday lenders can say in adverts and will ban any that are misleading. All of which are worthy of attention, but where is the unambiguous warning message of the potential damage taking a payday loan will do to your chances of getting a mortgage, particularly at the higher loan to values, including ‘Help to Buy 1 & 2’?
Let’s be clear. A payday loan on your credit history doesn’t mean that you can’t get a mortgage full-stop, however it almost certainly rules out most of the major high street lenders, and will leave us looking more at those lenders who manually underwrite, and where the rates aren’t likely to be the most competitive.
The whole payday loan situation is a perfect example of the lack of financial education in the UK. There’s plenty of regulation (and regulators) along with abundance of wordy small print, but no one to really explain the actual consequences of how things like payday loans can affect you, and your financial position. So it’s buyer beware… because no one else will tell you.
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