Payday Loan impact on chances of getting a mortgage?

dlv13

Hi
Long time lurker, first time poster (I think?)
My partner and I are trying to purchase a house together - we have an eleven month old who sleeps in a cot in our room (I have two children from a previous relationship who live with us half the week too) and we are desperate to move out of the city.
We accepted an offer on the house my partners owns - I am not named on the mortgage as she owned it before I moved in.  Due to her maternity leave we've used a lot of our available credit which we knew would impact our credit scores, however we did a fair bit of research and found there would be products available (we're under 85% LTV.)
Went for an MIP with Trussle who then said it would take them 48 hours.  Knowing this was a soft search I then contacted a broker.  We were declined with Halifax (partner's current lender) but were unsure why specifically so broker recommended we use checkmyfile.com.  Turned out my score was slightly higher than hers (unexpected as we both also check MyCreditClub regularly) but we're both in the "good" zone.  Couple of missed payments with Virgin Media three years ago and she had a late payment with Halifax three years ago, but all paid off immediately.  Broker advised this wouldn't be a massive concern.
While he was beavering away we saw a few houses and fell in love with one, that same evening the Trussle MIP came back so we took the plunge and offered.
I did advise the broker the next morning (as I used to be one twelve years ago and didn't want to undermine him) and said we'd rather go with him if we could.  He was fine with this but later that day said we had been declined with two lenders (adverse credit lenders too - Aldermore and Kensington!)  On closer scrutiny my partner had taken out a payday loan in October last year, paid off by April this year.

I hadn't been aware of it, but to be honest she'd, perhaps naively, believed it wouldn't affect her rating (and it didn't at the time - hers was much, much higher than mine until very recently.)
Broker has said we wouldn't find a mortgage because of it - we're waiting to hear back from Trussle (we've now explained the full circumstances to them).  We've looked and found lenders where their criteria says they can "help" and of course there are dozens of intermediary websites who claim to be able to help - don't mind doing soft searches but we really want to know whether or not this is worth pursuing.

The broker implied that, if we waited until 3rd October (the payday loan was taken out on 2nd October 2019) we'd be able to find a deal, but this seems odd as it wasn't paid off until April 2020.  Now, obviously it's not a massive delay so potentially we can do that (though we don't want to mess anyone about.)

Basically, I want to know if what he says is right?  We don't want to let the buyer or vendor down and we don't want to lose the house we've found.  Affordability checks out easily and otherwise both our credit files are good in the last two to three years (except the credit utilisation - half of which will be paid off with the equity from the house sale and there is never a late payment on any of it).

Does anyone know where we can go?  I appreciate this is all a bit "first world problems" but our son needs his own room before the next six months are up, the mother of my two older children is moving away and I want to move to be closer to them (otherwise it affects my access) and we're now the weak link in a chain which could be heartbreaking for our buyer and vendor, as well as us.

Any advice or tips would be gratefully received.
Thanks

haras_n0sirrah

There are lenders who are ok with occasional payday loan usage - some high street lenders too.
As a broker I would want to see the credit file but a payday loan a year ago isn't a deal breaker by any means

ACG

I agree with haras, there are lenders who are fine with pay day loans... especially if it is a one off.

Not to do the broker down but to go from Halifax to Kensington/Aldermore is a hell of a jump for your circumstances. I could be wrong but I almost feel like the broker is maybe inexperienced. Any experienced broker should be able to get this placed from what you have said. 

dlv13

Thank you both.
His initial thoughts were, because we'd failed an AIP with Halifax due to their "credit scoring" that it was worth a soft search with a company who doesn't score.  To be honest, we're desperate enough to move (for a few personal reasons too) that we'd pay a higher rate to secure the house so we weren't overly concerned.

There's no adverse credit on our files (no CCJs, IVAs, Bankruptcies etc.) just the odd missed payment I mentioned.  I am fully using my credit cards and overdraft though this is fairly demonstrably since my partner's salary reduced in maternity.
She's a nurse and we already have written confirmation of when she's returning to work (at the end of this month), salary etc and neither he nor anyone else sees that as the major sticking point.

As mentioned, I was a mortgage broker twelve years ago and there are many, many changes.  But this hit me for six really - I knew it wasn't exactly celebrated, but when he said we couldn't get a mortgage I was shocked.

Thrugelmir

dlv13 said:

 Affordability checks out easily and otherwise both our credit files are good in the last two to three years (except the credit utilisation - half of which will be paid off with the equity from the house sale and there is never a late payment on any of it).

Sounds as if there's more than initially meets the eye. Debt consolidation for one. Plus historic use of credit given the use of a Payday loan. These are more challenging economic times and lenders will be tightening their internal criteria. 

dlv13

Thrugelmir said:

dlv13 said:

 Affordability checks out easily and otherwise both our credit files are good in the last two to three years (except the credit utilisation - half of which will be paid off with the equity from the house sale and there is never a late payment on any of it).

Sounds as if there's more than initially meets the eye. Debt consolidation for one. Plus historic use of credit given the use of a Payday loan. These are more challenging economic times and lenders will be tightening their internal criteria. 

No debt consolidation - we've come up to (but never exceeded) our credit card limits since my partner's been on maternity leave, which I alluded to in the thread.  Always paid well over minimum payment, but we'll be paying all of the credit cards off with the equity from the sale. There will still be loans outstanding but we're not and have not consolidated any of our debts.

Absolutely take your point about the payday loan (hence the reason for the thread) but it seems bizarre that this would throw out an entire application - in fact the two previous posters seem to think the same as me so hopefully we can get a resolution.

Brock_and_Roll

Recent pay day loans are one of the ultimate red flags to many banks. You can look at incomes, expenditures etc till the cows come home but the use of a pay day loan indicates that the borrower financial situation is so stretched that they have had to resort to ultra expensive short term debt just to pay the bills and clearly do not have any savings put aside for such occurrences. 
Of course time and a big deposit can be big healers!

dlv13

It was a year ago and our deposit is healthy (not astronomical, but over 15%) so we're keeping our fingers crossed, though not necessarily optimistic.

It just seems odd that we can see a fair few lenders (albeit not high street) are still offering for those who have been bankrupt, had CCJs, IVAs etc. in the last three years but a payday loan (of £200) that was paid on time could throw out an entire purchase.

I've worked in financial services on and off for twenty years, so I fully appreciate the implications of payday loans (my partner wasn't unfortunately) and have taken a view on them myself in previous jobs.  But that it could put the kibosh on things even to an adverse credit lender is the surprise to me.

ACG

I think pay day loans are ruled out as they generally come with baggage attached so to speak. 
Its unusual to see a one off pay day loan, so it is easier to just say none than it is to spend the time looking over credit reports and bank statements for signs of financial distress. 

It is a common approach but not a deal breaker and there are potential high street rates out there. 

I had a customer once on £100k a year. He had a default to virgin media for £90 as he worked abroad a lot and completely missed the bill. He read online (and shown me the page on experian or equifaxs website) that said PDLs can (can being the key word) improve your credit score. That was in 2013 admittedly and that was the deal breaker for normal rates at the time, not the default. Crazy that a loan he took out to improve his score that he paid back in 48 hours and did not need as he could show £20k in his bank account at the time was the deal breaker and not the bill that he defaulted on. A lot has chanced since 2013 though but I still wonder how that could happen. 

Thrugelmir

dlv13 said:

Thrugelmir said:

dlv13 said:

 Affordability checks out easily and otherwise both our credit files are good in the last two to three years (except the credit utilisation - half of which will be paid off with the equity from the house sale and there is never a late payment on any of it).

Sounds as if there's more than initially meets the eye. Debt consolidation for one. Plus historic use of credit given the use of a Payday loan. These are more challenging economic times and lenders will be tightening their internal criteria. 

No debt consolidation - we've come up to (but never exceeded) our credit card limits since my partner's been on maternity leave, which I alluded to in the thread.  Always paid well over minimum payment, but we'll be paying all of the credit cards off with the equity from the sale. There will still be loans outstanding but we're not and have not consolidated any of our debts.

Absolutely take your point about the payday loan (hence the reason for the thread) but it seems bizarre that this would throw out an entire application - in fact the two previous posters seem to think the same as me so hopefully we can get a resolution.

That's being semantic. There's only one bucket. To make up the shortfall you are simply increasing the size of the new mortgage to effect the new purchase. Lenders can tell much from reviewing (it's an automated process using algorithms) your credit history / usage over the past 72 months as well. 

dlv13

Thrugelmir said:

dlv13 said:

Thrugelmir said:

dlv13 said:

 Affordability checks out easily and otherwise both our credit files are good in the last two to three years (except the credit utilisation - half of which will be paid off with the equity from the house sale and there is never a late payment on any of it).

Sounds as if there's more than initially meets the eye. Debt consolidation for one. Plus historic use of credit given the use of a Payday loan. These are more challenging economic times and lenders will be tightening their internal criteria. 

No debt consolidation - we've come up to (but never exceeded) our credit card limits since my partner's been on maternity leave, which I alluded to in the thread.  Always paid well over minimum payment, but we'll be paying all of the credit cards off with the equity from the sale. There will still be loans outstanding but we're not and have not consolidated any of our debts.

Absolutely take your point about the payday loan (hence the reason for the thread) but it seems bizarre that this would throw out an entire application - in fact the two previous posters seem to think the same as me so hopefully we can get a resolution.

That's being semantic. There's only one bucket. To make up the shortfall you are simply increasing the size of the new mortgage to effect the new purchase. Lenders can tell much from reviewing (it's an automated process using algorithms) your credit history / usage over the past 72 months as well. 

No, that's being specific.  Debt consolidation implies further borrowing to include all of your debts.  We are using equity to pay off an existing debt, the function of the mortgage is a house purchase and the deposit is coming from the same equity.

Besides which, without knowing any figures you couldn't possibly know whether or not increasing our deposit by the amount we intend to use to pay off credit cards would change anything (it wouldn't, we would remain in the <85% banding.)

Fully appreciate this is a public forum and I've asked for quite specific advice and I am hugely grateful for the messages I've received already.  But you haven't provided any and instead are seemingly picking fault or making implications where there are none to be made.