Every time a mortgage lender considers an application, it will be passed to their underwriters, who analyse the risk attached. Payday loans are, by some lenders, considered a high-risk factor, and indicate mismanagement of funds.

However, there are plenty of specialist lenders who continue to offer competitive mortgage rates to applicants who have payday loans on their credit file.

The reasons it can be so tricky to find a mortgage lender when you have a payday loan history are:

• Lending Policies: Each lender has its own criteria, and many do not publish these. It can therefore be impossible to know what their attitude is to payday loans until after applying.
• Restricted Lending: Lenders can only offer their own products, along with whatever restrictions they carry. As an independent broker, we have access to the whole of the market, and can therefore offer specialist finance from any lender.
• Case-by-Case Approvals: In some cases, there is no particular policy in place. In this scenario, some applications might be approved, and others rejected, and some lenders will suggest applying and leave it to the underwriters to make the decision.

There can be several restrictions in place if you've used payday loans:

• Many lenders will limit the LTV ratio they are willing to lend up to. Applicants with a payday loan history may need to pay a higher deposit, from 15% and above. Revolution Brokers work with niche providers who will accept as low as a 5% deposit in some scenarios.
• The number of mortgage products available is lower if you have had payday loans, and therefore a lender will offer a limited choice of terms and types of lending. Using a broker is an ideal solution since you can pick and choose between mortgage types, structures and repayment terms.
• Interest rates and fees charged for setting up a mortgage can be higher. However, if your payday loans were some time ago, you have a good credit score and have a reasonable deposit, there is no reason you can't find a competitive mortgage through a broker.
• Some lenders will have stricter affordability criteria for applicants with payday loan history. This all depends on their policies and how much you wish to borrow. Some will limit lending to 3 x your annual income, whereas others will lend up to 4.5x. Our lenders will typically look at your monthly disposable income as the primary factor.

With so many variables, you might find that two lenders offer very different mortgages and rates. It is therefore essential to work with an experienced broker who will know which lenders are best placed to support your requirements.

Other factors come into play, including what type of employment you have, and how regular and reliable your income is.

The more complex your credit issues, the trickier it is to secure competitive mortgage lending.

Having both an adverse credit history and a record of payday loans creates two risk factors for a lender to have to assess.

However, suppose you have used payday loans and repaid them in good time, and have since managed your finances well. In that case, we can apply for mortgage products with lenders who offer excellent terms and more flexibility when it comes to assessing your application.

If you have any credit issues such as those below, you generally need a higher deposit, although some specialist lenders will accept as low a deposit as 5%:

• Late payments
• CCJs
• Defaults
• Debt management plans
• Bankruptcy
• IVAs
• Repossession

Having a payday loan on your credit file as well as any of the above means that it is essential to work with a specialist broker who can identify a lender that meets your needs.

In this scenario, the number of lenders who will accept your application reduces even further - while payday loans are harmful, not being able to pay back short-term emergency financing indicates more severe credit issues.

However, Revolution Brokers can work with you to demonstrate that your finances are now back in a good position and that you have recovered from the credit pressures associated with the default.

The longer ago the payday loan default, the more likely it is that you will be offered the lending you need.