Published 18 March 2024 · Last reviewed 18 March 2024 · Older article — see current rates

Klarna, GoCardless and PayPal Credit charges  – Buy now pay later contracts and mortgage affordability.

“Buy now, pay later contracts” and arrangements have existed for decades but are becoming more prevalent with the emergence of major fintech disruptors. But how do these financial commitments impact your chances of getting a mortgage?

In my daily work as a mortgage broker, I constantly analyse credit reports. I still see credit cards, personal loans, and hire purchase features, but “Buy now pay later contract” giants such as Klarna, GoCardless, and PayPal Credit are, from what I can tell, on the rapid rise. And there are others such as 2Checkout, AffiniPay, Affirm, Afterpay, Braintree, Chargebee, Clearpay, Openpay, Payl8r, PayU, Quadpay, Regpack Inc, Sezzle, Splitit, Laybuy, ViaBill, and Zip Co.

From a general perspective, if used in the right way—you’d argue, why not—it’s become a way of life for many. I’ve seen that mortgage lenders’ credit scoring systems do not pay too much attention to the nature of the transaction provided the commitment has been maintained, unlike “payday” loans, which are often stigmatised and lead to penal scores.

So, does it matter for mortgages if you have “Buy Now, Pay Later contracts” on your credit record? Well, it’s a warning sign to the Mortgage Underwriter that you may be living beyond your means and could lead to an increased observation of bank statements, credit cards and overdrafts.

Oddly, it could even be a plus in isolation as it demonstrates that you can handle financial responsibilities.

However, if there is regular usage, perhaps it would throw into question whether it is a harmful “instant gratification” addiction that could step ahead in the priority of the mortgage payment, particularly if you’ve had mortgage arrears in the past.

Also, we would be naive to think the development of mortgage credit scoring models stands still, particularly when AI analysis could observe the pattern of mortgage payment behaviour. I suspect the data of fintech “buy now pay later contracts” is too immature to conclude the payment of a long-term contract such as a mortgage; however, if a link is buy now pay later to a poor mortgage payment is discovered, expect this to be incorporated in the future.

Table: on How “Buy now, pay later contracts” can affect mortgage affordability

John is a first time buyer looking to take out a mortgage on his own for a terrace house in the West Midlands. He has a 10% deposit. He wants a repayment mortgage over 25 years. He is employed on £38,000.

Example 1: Without a buy now pay later contract.

2 Year Fix maximum mortgage	Accord	Halifax	Nationwide	NatWest	Santander
	£170,620	£159,010	£168,200	£169,100	£169,100
5 Year Fix maximum mortgage	Accord	Halifax	Nationwide	NatWest	Santander
	£170,620	£170,620	£209,000	£169,100	£169,100

Example 2: One buy now pays later debt of £2,000 and pays £175 with Klarna.
Interestingly, not all mortgage lenders are affected by this modest debt addition.

2 Year Fix maximum mortgage	Accord	Halifax	Nationwide	NatWest	Santander
	£170,620	£139,355	£148,700	£161,500	£162,562
5 Year Fix maximum mortgage	Accord	Halifax	Nationwide	NatWest	Santander
	£170,620	£164,285	£189,000	£169,100	£169,100

Example 3: Two buy-now-pay-later debts £2,000, paying £175 with Klarna, and £3,000, paying £225 with PayPal Credit.
This level of buy now, pay later is now eating into all the lenders’ affordability calculations, with the exception of Accord Mortgages, which is a dedicated intermediary-only subsidiary of Yorkshire Building Society.

2 Year Fix maximum mortgage	Accord	Halifax	Nationwide	NatWest	Santander
	£170,620	£114,085	£122,100	£136,300	£134,620
5 Year Fix maximum mortgage	Accord	Halifax	Nationwide	NatWest	Santander
	£170,620	£134,495	£155,200	£147,700	£146,686

Source MBT affordability tool 17/3/2024. All cases must be discussed individually and are subject to credit score, valuation and full underwriting.