How “Buy Now Pay Later” loans can impact your borrowing capacity

This week, we delve into an increasingly popular financial convenience that could have implications on your mortgage affordability: Buy Now, Pay Later (BNPL) schemes.

BNPL: A Double-Edged Sword
While services like Klarna, Clearpay, and Laybuy offer a tempting facility to spread the cost of purchases without immediate financial burden, they also bring considerations that potential homeowners must be aware of.

When applying for a mortgage, lenders will ask for details of all active BNPL arrangements which are treated similarly to other forms of credit, such as loans or credit cards.

Short-Term vs. Long-Term BNPL Plans:
A minor BNPL plan, such as deferring a £50 jacket purchase for 30 days, is unlikely to impact your mortgage application, assuming it’s paid off promptly.

Conversely, more substantial commitments, like a £500 washing machine paid over six months, represent ongoing financial obligations that lenders will consider. These extended payments reduce your monthly disposable income, thereby potentially reducing the amount you can borrow.

The Risks of Missed BNPL Payments
Missed payments are not just mere inconveniences—they can incur fees, and with some providers now reporting to credit-reference agencies, they may negatively impact your credit score. This, in turn, could affect your attractiveness as a borrower in the eyes of lenders.

Get In Touch Today
Our team is ready to provide you with tailored advice and support to help you navigate your mortgage options effectively. Get in touch now on 0208 364 3444 alternatively click here to schedule a free consultation call.

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