Mortgages After Payday Loans

Are payday loans getting in the way of your mortgage application? Find out why, and what you can do to get approved, with our guide to getting a mortgage after payday loans.

Firstly, have you taken out any Payday loans in the past 12 months?

Home Bad Credit Mortgages Mortgages After Payday Loans
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Jon Nixon

Reviewer: Jon Nixon

Director of Distribution

Updated: March 15, 2024

How we reviewed this article:

Our experts continuously monitor changes in the financial space and work closely with qualified mortgage advisors for factual verification.

March 15, 2024

We’ll explain why it will be more difficult to get a mortgage if you’ve ever used payday loans, how they can impact your application, and how you can boost your chances of approval by consulting a mortgage broker before applying.

Can you get a mortgage after using a payday loan?

Yes. Having an existing or previous payday loan on your credit file won’t stop you from getting a mortgage.

But it will limit your choice of mortgage lenders, rates and deals.  It can also affect the maximum loan to value (LTV) lenders are prepared to offer you, which means you will need a larger deposit.

Increase your chance of approval with a broker who's a specialist in mortgages after payday loans

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How to get a mortgage if you’ve used a payday loan in the past

Your first step should be to speak to a mortgage broker who specialises in helping borrowers with payday loans on their files.

They will guide you through the following steps:

  • Downloading your credit reports: You can do this through a free credit report trial and your broker will suggest ways to offset the risk posed by your payday loan usage, such as ways to build and repair credit quickly.
  • Completing the necessary paperwork: This can be a time-consuming process without a mortgage advisor on your side. Your hand-picked broker will guide you through it from start to finish, taking the legwork out of it.
  • Finding a lender who will approve you: Using a mortgage advisor is recommended for this as many lenders won’t approve borrowers who have used payday loans. Fortunately, the brokers we work with know exactly which lenders will and can help you secure the best rate through them.

Why are payday loans a problem for mortgage providers?

Mortgage providers don’t like payday loans as they suggest an inability to manage your finances. However, a single historic loan that was settled on time will be acceptable to some lenders if you can provide a satisfactory explanation as to why you needed it at the time.

If you took it out to fund emergency car repairs, for instance, and the rest of your credit history is exemplary, this may have very little impact and you could still get offered the best rates with some lenders.

But if you are currently using payday loans frequently (and in particular if you are rolling them over), this indicates you’re struggling to manage your existing commitments and will reduce your pool of potential lenders by around 70%.

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How do mortgage lenders assess applicants with payday loans?

Having an open payday loan will result in some lenders rejecting your application outright. One settled loan from five years ago will be less likely to result in a refusal, but it’s worth noting that many high street lenders do not accept applications if you have a payday loan on your credit file.

Payday loans stay on your credit file for six years and might be marked as:

  • Advance against income
  • Short-term credit
  • Revolving credit

Each lender has their own criteria and these can vary significantly. It’s important to recognise that you will be deemed a higher-risk borrower, so it’s unlikely you’ll be offered the mortgage provider’s best interest rates. And you may also have to pay higher-than-average fees to offset the added risk, although this is not always the case.

The most important things lenders will look for when evaluating your use of payday loans are:

  • How long ago you took your last one
  • How frequently do you use them
  • Why you needed to use them

Maximum loan amount

Some lenders have a maximum loan amount of £250,000, while others cap the loan to value (usually at between 75-80%). An LTV of 75% will mean you need a 25% deposit. In some circumstances, you may be able to get a mortgage with a higher LTV. And it’s not impossible to get approved with a deposit of 5% if everything else stacks up and you approach the right lender.

The maximum amount you can borrow will likely be limited to four times your annual income, or lower, with the most risk-averse lenders. Having said that, it’s not completely out of the question that you could borrow up to five times your income by choosing the right provider.

Why you needed the loan and how long ago you took it out

When it comes to how frequently payday loans have been used, there is a huge disparity. There are mortgage providers who will not accept applications if you have had any payday loans in the past twelve months and others who will lend even if you have one still outstanding.

Typically, your chances of getting approved by high-street lenders increase after two years, but it is possible to get approved for a mortgage sooner.

It’s almost certain that a lender will expect you to pay up any outstanding loans as a condition of the mortgage. Even so, some lenders will factor part of your typical debt repayments into their affordability assessment as a stress test.

The value of your loan

Some lenders look at the value of the loan you took out as a percentage of your net monthly income. Any single loan totalling more than 10% of your income is likely to see your application rejected. Below 10%, you are more likely to find a lender – but need to know which ones to approach.

Type of income

As a rule, mortgage providers like applicants with a steady PAYE income. If you have recently started a new job, are self-employed or have complex income streams, most mortgage providers will see increased risk in lending to you if you have a history of relying on payday loans. In this instance, you will almost certainly need a broker to help you find a mortgage.

Which lenders have you already tried?

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What if you have bad credit as well?

Having bad credit on top of payday loan usage can add a layer of complexity to a mortgage application. Luckily there are mortgage lenders who specialise in bad credit and they will take a broader view of your application to assess its overall strength.

Just as they will review why you took out the payday loan and how long ago it was, they will assess why you have bad credit, how old the issue is and the severity of it.

In other words, there’s no reason why having bad credit and a payday loan will automatically disqualify you from getting a mortgage, provided you find the right lender.

Can you still be approved if you have defaulted on a payday loan?

It’s possible but very difficult. Once again, the amount of time lapsed will influence the outcome. You will need to apply to a specialist bad credit mortgage lender and have proof that your finances have recovered. With such a small pool of lenders, a specialist bad credit mortgage broker is essential.

Can you remortgage after taking out a payday loan?

Remortgages are assessed in much the same way as any other mortgage application. This means your payday loan usage will have much the same effect in terms of limiting your options and meaning you pay higher rates.

A broker will look at all the alternatives to try to find you a better deal with a more suitable lender. Often, this is the best way to remortgage if your current circumstances don’t meet your existing provider’s criteria.

In many cases, they will direct you to a specialist lender who assesses applications on a case-by-case basis. This can be helped by the broker’s working relationship with the lender as they can act as an advocate on your behalf.

You might even be able to remortgage to pay off debt and put yourself on a better financial footing.

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Get matched with your ideal mortgage broker

Before you can find the right lender and product, you need to find the right mortgage broker. Mortgages for people who use payday loans are complex and require a thorough understanding of each provider’s attitude to this type of short-term lending.

Any rejected applications will leave a mark on your credit file and hinder your chances of finding a lender.

With our broker matching service, we will assess your circumstances and find you a broker with a track record of getting the best mortgage deals for people just like you.

Call today on 0808 189 2301 or enquire online to get matched with your ideal broker.

Increase your chance of approval with a broker who's a specialist in mortgages after payday loans

Get Started Phone Icon 0808 189 2301


No. Payday loan usage does not directly impact your credit score unless you default on them, so simply taking one out and paying it back on time will not negatively impact your credit score.

You may have heard that paying off a payday loan can help build your credit score. While this is technically true, taking one out is not recommended if you are applying for a mortgage, as having to use one at all can still deter mortgage lenders.

If it was in the last six years, then you will need to be honest and upfront about it. Your mortgage lender will be able to see any payday loans you have taken within this timeframe when they review your credit files, so honesty is the best policy.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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