After it became clear that major lenders were asking potential homebuyers about the use of buy-now,-pay later programs, they are warning them about the dangers.

Shoppers can shop online and defer, or even split their payments by purchasing “Buy Now, Pay Later”. Clearpay, Laybuy, and Klarna are some of the largest providers on the market.

These programs saw an increase during the pandemic because more people shopped online.

Which? is the consumer group. But Which?, a consumer group, has stated that many people didn’t realize that BNPL is considered a debt by some lenders and that they treat it the same as a credit card or loan.

Scrutiny: Users of popular buy now, pay later apps such as Afterpay and Klarna may need to disclose this when they apply for a mortgage - and lenders could consider it a risk

Skuiny: Afterpay or Klarna are popular buy-now, pay later apps. This could be a problem for lenders who may consider the user a potential risk.

Which? Which?

Which? Which?

They often asked for details about each agreement, including the total amount owed and whether it would be fully paid before the mortgage was approved.

Five lenders, HSBC (NatWest, Santander and Virgin Money), did not mention BNPL in their principle online decisions.

Coventry Building Society doesn’t accept online applications. However, it confirmed that they did not inquire about BNPL when applicants applied for a principle decision.

These details will be available later on in the mortgage process, even if the decision-in principle request does not include them asking for the same information.

When you apply for mortgage, your lender conducts a hard credit check. Your lender may access your credit file and request bank statements.

Clearpay and Klarna, among others, won’t show any evidence of borrowing on credit reports. OpenPay and Laybuy, however, will.

Which? researchers filled out online mortgage applications to see when BNPL borrowing was picked up. It found that four lenders asked for information at the decision in principle stage

Which? Online mortgage applications were completed by researchers to determine when BNPL borrowing had been taken up. The research revealed that the principle decision was made by four lenders.

Lenders may also pick up payments made to BNPL providers even if they are not listed on your credit file.

Many of them confirmed that they had spoken with Which? They looked out for BNPL committments in bank statements.

Lending rates are also affected by how long the loan agreement is, as well as whether interest charges are paid.

Many schemes allow you to defer smaller payments up to 30 days, or for as long as six weeks interest-free. However, there are some that offer longer loan options to customers who purchase big ticket items.

Monzo, for example, recently launched Flex, which offers a limit of up to £3,000 and the chance to split the cost of purchase over £30 over three instalments interest-free, or for a longer period of six to 12 instalments at a typical 19 per cent APR.

Lenders shared their views with Which? Lenders told Which that they classified this type of borrowing alongside more traditional forms of credit.

Barclays had the strongest stance on BNPL. It stated that active BNPL agreements were to be considered financial obligations, similar to loans or credit card payments.

Nationwide and Coventry Building Society stated that they did not consider formal BNPL contracts, which look like a traditional finance arrangement bearing interest and had at least six months remaining, in determining affordability.

Which? said: ‘A £50 jacket that you choose to defer paying for 30 days, interest-free is unlikely to scupper your mortgage, as this will most likely be paid back by the time your mortgage is granted.

‘However, a £500 washing machine you’ve chosen to split into six payments would be a debt commitment that will impact how much spare cash you have each month and therefore will need to be taken more seriously.’

Can BNPL really renege on your mortgage?

Depending on how much BNPL borrowing a customer has in relation to their income and number of BNPL agreements, it could lead to a reduction in their ability to borrow or rejection.

 While BNPL arrangements by their very nature might not have a big bearing on affordability, this doesn’t remove the potential for lenders to make further enquiries

David Hollingworth, mortgage broker 

The lender must ultimately decide if the customer relies too heavily on short-term credit.

However, Which? However, Which? They used it instead to assess the financial condition of customers.

Mortgage broker David Hollingworth of L&C said: ‘While BNPL arrangements by their very nature might not have a big bearing on affordability, this doesn’t remove the potential for lenders to make further enquiries around something on a bank statement.

“If a borrower uses BNPL very frequently and in a greater volume, it may require additional justification from the underwriter.”

What can BNPL members do to maximize their mortgage opportunities? 

 Which? The following information was provided by Which? regarding how BNPL clients could increase their chances to get the green light for a mortgage application. According to it: 

Cutting down on BNPL borrowing could be the kety to mortgage acceptance

The key to mortgage acceptance could be cutting down on BNPL borrowing

Borrow cool BNPL If possible, avoid signing BNPL agreements before applying for a mortgage. Barclays advised Which? It advised prospective homeowners to not sign any credit agreement before applying for a mortgage. 

Pay your bills on time Keep on top of your existing BNPL commitments and your overall level of debt. Make sure that you are able to repay any BNPL debts such as credit card overdrafts or loans. 

All information availableIf the principle form asks you about BNPL spending or if your broker is involved, be honest about it. Also, tell them about any BNPL obligations early in the process. Your chances of getting approved for mortgages and finding the right lender are higher if you tell your broker all details.

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