While occasional use of BNPL will not attract much scrutiny from lenders, frequent use is likely to be seen as a ‘red flag’ and many mortgage providers take a strict view on this.
The comments come as regulations are set to come into force on July 15 to provide stronger protections for those using BNPL.
This flexible payment method, which allows people to pay for purchases in interest-free installments, has become increasingly popular in recent years. UK Finance data shows that 25% of UK adults used a BNPL at least once in 2024 compared to 14% in 2023.
Now the sector is regulated by the Financial Conduct Authority (FCA), meaning BNPL providers will be required to provide advance information to borrowers detailing how and when repayments are due, as well as the amounts and size of any penalties for late payments.
There will also be affordability checks to ensure customers can borrow money to make future payments through BNPL.
The new regulations are being welcomed by mortgage brokers who fear that many people are currently unaware that they are actually borrowing money when using a BNPL.
In fact, Dharani Ganesharajah, a mortgage broker at… Springtide CapitalSpeaking to Newspage, he said: “People using BNPL often overlook the fact that they are borrowing money, which can be a blow to their purchasing ambitions when it comes to applying for a mortgage.
“We hope the regulated sector will make people think more about what they are getting into and the risks involved.”
Ganesharaja explained that since the amounts borrowed through BNPL facilities can be small, people often forget to mention them when applying for a mortgage, which can create problems in itself.
“Borrowers will sometimes forget to disclose them or simply not consider them relevant when discussing their finances,” she continued.
“This can create problems later in the mortgage process when lenders determine liabilities through bank statements or credit checks.
“In some cases, this can lead to reduced borrowing capacity, rejection of decisions in principle, additional credit searches, requests for further documentation and delays in applications.”
She expressed her belief that more regulation and transparency would be a positive thing. “If consumers start to view BNPL as a form of borrowing and not just a method of payment, they may become more selective in how they use it.
“This would make affordability assessments clearer and reduce surprises during the mortgage application process, benefiting borrowers and lenders alike.”
Meanwhile, Thomas Boughton, founder of… Artelium Real Estate Finance Company, headquartered in LondonHe, who also spoke to Newspage, said his company advised customers not to use BNPL. He feared that many people did not understand the risks and long-term financial impact.
He said: “From a mortgage underwriting perspective, lenders take a strict view on the use of BNPL. Even when payments are maintained, BNPL liabilities can indicate higher risks and impact affordability.
“From an advisory perspective, we advise against using BNPL. It is often used for discretionary purchases such as clothing or shoes and frequent use can be a red flag in mortgage valuations.
“From a lender’s perspective, if you have to finance a pair of shoes, it’s probably not a good time to look at mortgage options, and that’s the reality.”
Traditional forms of payment such as credit cards, which are managed and paid off monthly in full, are viewed more favorably by lenders and are better at building a more reliable credit history, he said.
However, Nouran Mustafa, IFA’s Practice Director Ruxton fortunetold Newspage that lenders look for patterns, and while occasional BNPL use wouldn’t raise any concerns, excessive use could “hurt affordability.”
She hoped that the regulation would make potential mortgage applicants more satisfied with using BNPL.
“Regulation should make BNBL cleaner and more transparent, but it will not suddenly turn heavy usage into a positive credit signal. The lender is still wondering: Is this borrower relying on short-term credit to cover the month?”
“My view is simple: regulation is good for consumers, but borrowers should not confuse regulation with harm,” she added.
