Last post: Jul 12, 2012
What has long been suspected has now been formally confirmed: GE Money have become the first lender to publicly state that they will refuse mortgage applications if the client has taken one payday loan in the past three months or more than two in the past twelve months, even if they were fully paid off in time.
What has long been suspected has now been formally confirmed: GE Money have become the first lender to publicly state that they will refuse mortgage applications if the client has taken one payday loan in the past three months or more than two in the past twelve months, even if they were fully paid off in time. For some time now brokers have anecdotally recounted how clients with a payday loan history were refused mortgages. Here at Choice Loans we are familiar with cases from NatWest, Nationwide and others where the deal was mysteriously turned down and all we could point to was that the client had a history of taking PayDay loans. These companies have not yet formally admitted they will decline applications from those who have had PayDay loans in the past but there have been comments related to this from the lenders. Nationwide have said they will "manually review" cases where short-term high interest rate loans have been made and make a decision on a case-by-case basis; HSBC have said such a loan may indicate a borrower in a "stressed position" with their finances and Barclays have said they would deduct any outstanding loan from monthly disposable income when calculating affordability. The argument can be made that anyone who takes a PayDay loan is doing so because their finances are stretched. However, we feel a blanket policy against them doesn't take into account some very reasonable factors. For example, the recent banking errors at RBS left tens of thousands of people without their pay packet and it is quite conceivable that for reasons beyond their control many people may have taken a PayDay loan to enable them buy essential items or make critical payments such as rent or utility bills. Is it fair that these people are shunned by GE Money when they go looking for a mortgage in the next 3 months? We think not. A spokesperson for GE Money said "As a responsible lender in a challenging market we review a range of data to make prudent mortgage lending decisions. Payday loan data is one of many items included in this review and if a mortgage applicant has a current or had a recent payday loan, it is unlikely that we will consider their mortgage application". In other words "Computer says No". PayDay loans have taken a lot of bad press recently due to the high interest rates they charge. Our view has always been that, like all forms of finance, if used prudently and correctly they have their place. People rail about the interest rates charged but if a loan is taken such that it prevents a client going into unauthorised overdraft (which can result in a fine of up to £200 from some banks) then isn't this a prudent usage of the loan facility? If a loan is taken to counteract the effects of the recent RBS account errors then surely this too is prudent. It's a shame the new policy from GE Money does not account for those who are managing their finances sensibly and who may well make excellent mortgage candidates.
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