What Is Buy Now Pay Later and What Does It Mean for My Mortgage Applications?
Written on 25 February 2025 by
What is Buy Now Pay Later?
Buy Now Pay Later (BNPL) schemes allow consumers to purchase items on credit and defer payment to a later date. This typically involves either spreading the cost over several interest-free instalments (often three) or delaying the full payment for an interest-free period, such as 30 days.
BNPL services have surged in popularity, particularly among online retailers and high-street shops, offering an alternative to credit cards for younger consumers and families. Popular BNPL providers include Klarna, Clearpay, and Laybuy, each with its own payment structures and terms.
While BNPL can provide flexibility in managing short-term expenses, it is increasingly being scrutinised by regulators due to concerns over consumer debt accumulation and transparency of terms.
How Do Lenders Assess Buy Now Pay Later When Arranging a Mortgage?
When applying for a mortgage, lenders assess an applicant’s financial stability and ability to manage long-term borrowing. This includes gathering personal details, income information, and a breakdown of expenses.
As part of this process, lenders conduct credit searches, either soft or hard, which will reveal any BNPL commitments, outstanding debts, and spending habits. The presence of BNPL agreements can impact mortgage applications in different ways, depending on:
- The total outstanding balance from BNPL purchases.
- How much is being repaid each month.
- The length of time the BNPL agreement is in place.
Frequent use of BNPL schemes, along with other forms of short-term credit, could signal to a lender that an applicant is over-reliant on unsecured borrowing. This may result in a lower maximum borrowing amount or, in some cases, an outright decline if the lender deems the financial risk too high.
While some BNPL agreements may not be reported on credit files, an increasing number of providers now share repayment data with credit agencies. For example, Clearpay and Laybuy report transactions to credit reference agencies, meaning any missed or late payments could negatively impact your credit score.
Not all lenders require BNPL loans to be disclosed during the decision in principle stage. However, during a full mortgage application, a hard credit search will uncover any BNPL commitments, potentially leading to a revised decision. This is why transparency with your mortgage adviser is crucial to avoid unexpected hurdles.
Lenders distinguish between short-term and long-term BNPL usage. For example, deferring payment for a £50 purchase over 30 days is unlikely to affect your mortgage application. However, opting for a £1,000 BNPL plan with six or more instalments may be considered a significant financial commitment, affecting affordability calculations.
Changes in BNPL Regulation
The UK government has announced plans to regulate the BNPL industry more strictly, aiming to protect consumers from potential debt traps. Proposed changes include:
- Requiring BNPL providers to conduct affordability checks before approving transactions.
- Ensuring clearer terms and conditions to prevent hidden fees and unexpected charges.
- Mandating providers to share BNPL borrowing details with credit reference agencies, increasing transparency.
These regulations, expected to take effect in 2025, mean that BNPL agreements will increasingly be considered as part of creditworthiness assessments, making it even more important to manage these commitments responsibly.
Things to Consider
As you prepare to buy a property or remortgage, carefully tracking your spending and existing financial commitments is essential. Consider the following:
- Ensure all BNPL payments are made on time to prevent late fees and damage to your credit file.
- Avoid taking on new BNPL agreements in the six months leading up to a mortgage application. This reduces the risk of lenders questioning your financial habits.
- If possible, pay off existing credit balances—including BNPL debts—as quickly as you can, rather than just making minimum payments. This demonstrates financial responsibility and can improve affordability assessments.
While BNPL can be a convenient way to spread payments, it’s essential to consider its long-term impact, especially when applying for a mortgage. If you have concerns about how BNPL commitments or other short-term debts could affect your mortgage application, seeking professional advice from a mortgage broker can help you navigate potential challenges.
For any questions regarding BNPL or mortgage concerns, call us on 0808 149 8381 or enquire online today.
Category:Nicholas Mendes
