Borrowers who take advantage of a service that allows them to access a portion of their monthly salary before their regular salary may find that lenders will be unwilling to offer them mortgages due to budget issues, intermediaries have warned. .
Wagestream is a new service that partners with employers to give staff the opportunity to tap into a portion of their monthly salary earlier.
Employers pay around £ 1 per month per employee for the service and can limit how much their staff can withdraw before their actual pay. Employees are then charged £ 1.75 each time they make a withdrawal.
The company argues that this is a much cheaper way for people to deal with unexpected bills, rather than having to turn to their overdraft or even a bad credit payday loans
However, brokers fear that lenders will look down on borrowers who use such facilities.
Can they really budget?
David Sheppard, managing director of Perception Finance, said it would “rightly cause a degree of concern for a mortgage lender” if he found out that a potential borrower had used a service like this because “they are almost the same “as payday loans.
He suggested that the need to get money outside of the normal pay schedule would make lenders question whether the borrower is able to budget enough.
“This type of function may be fine for one time only, but I think if a lender saw it used two or three times a month, they would be concerned that mortgage payments would be missed if there is not enough funds for it. do, ”he added.
Paul Flavin, managing director of Zing Mortgages, said products like this are only a way to “fix the problem later”, noting that if used repeatedly it is due to “a lack of budgeting rather than a need for access to emergency services “. funds”.
He added: “I am convinced that financial prudence is something that is becoming increasingly rare in a society that “has the need for it now” and while I appreciate that many people have a deficit of pay over expenses, we see many applications from people who earn well but still use payday loans rather than taking the responsibility of budgeting.
Making mortgages more affordable
However, Peter Briffett, CEO of Wagestream, argued that the service is not a loan or form of credit deducted directly from wages, and noted that if an employee withdraws money during a cycle of payroll, it goes into their account under the employer’s name as usual, with any withdrawal exactly matching the net pay amount on their payslip.
He continued, “As a result, this has no negative impact on the affordability calculations. There is no borrowing, no interest, and no withholding from an employee’s income on their pay stubs.
“Mortgages for people who use Wagestream are actually becoming more, not less, affordable because they are less likely to resort to expensive forms of borrowing, such as payday loans, credit cards and overdrafts. . Therefore, they have better credit scores.
“This means that they avoid having to pay high interest rates and, in the case of payday loans, do not have their credit rating negatively affected.”
What would lenders think?
David Lownds, head of marketing and business development at Hanley Economic Building Society, said the mutual would likely consider using such a program as a sign of “stressed affordability.”
He added: “At the very least, we would need an explanation as to why the candidate needed to access their salary before payday. Second, we were looking for frequency of use.
The lender does not accept applications from potential borrowers who have taken out a payday loan within 24 months of the application.
A spokesperson for the Yorkshire Building Society said that when considering a mortgage application, it was in the borrower’s and mutual’s best interests to verify that their income was “regular and stable” .
They added: “Our underwriters will always look at payslips to review income and often also review bank statements to get the big picture of their financial well-being. We assess requests on a case-by-case basis so that our underwriters can be confident that the borrower is able to handle the commitment they are making.