People who have used the buy now, pay later (BNPL) service Klarna are being declined when applying for mortgages, Refinery29 has learned.
Twenty-six-year-old Nicki (who didn’t want to give her real name) works in publishing, earns £32,000 per year plus bonuses and is based in London. Last year she applied for a mortgage to buy her first home and was declined by HSBC and Barclays. Her mortgage advisor told her that both banks said it was because she had used Klarna despite the fact that she had never missed a repayment.
"I’ve used Klarna for around two years," Nicki explains. "I used it to buy some clothes and art prints. The stupid thing is that I had the money in my account at the time. I just used it because I thought it was cool – I just liked the idea of not having to pay for things straightaway. It wasn’t out of necessity that I used it but more something new to try which seemed a bit fun."
An HSBC UK spokesperson said: "As a responsible lender, decisions on mortgage applications are based on affordability."
A Barclays spokesperson said: "As a responsible lender we assess the affordability of each and every mortgage application. All credit agreements, including BNPL agreements, are included in this affordability assessment."
The same spokesperson added: "Customers who have BNPL payment agreements are not automatically rejected for a mortgage on this basis. Barclays' recommendation to all prospective homeowners is not to enter into any new credit agreements before applying for a mortgage and ensure all short-term debt is paid off before submitting a mortgage application."
That said, they confirmed that all active BNPL credit agreements will be considered ongoing monthly payments when affordability is assessed.
The issue, then, seems not to be that BNPL services like Klarna are impacting credit records but that they may count against a mortgage applicant as part of an affordability assessment.
Nicki says that if she had known that using Klarna could prevent her getting a mortgage, she would not have used it.
There are many BNPL services available. They include Klarna, Clearpay and Laybuy.. The idea is that they allow consumers to spread the cost of their purchases over several weeks or months with interest-free instalments instead of making an upfront payment. They are increasingly a payment option at the checkout of major online stores such as H&M, ASOS and Boohoo. However, some consumers use them to order multiple items and return those they do not want.
Last year a report conducted by the payment processor Worldpay found that as many as 10 million people had used BNPL services in the year to March 2020, with the sector growing at a rate of 39% per year. A new report entitled "Shop Now, Stress Later" from money.co.uk has found that UK consumers now owe an average of £244.37 per person to BNPL services. The same report also found that 18 to 24-year-olds are more likely to use BNPL services (54%) than a credit card (49%).
Klarna alone now has 90 million consumers globally, partnering with over 250,000 merchants in 17 countries. They told Refinery29 that they see more than 2 million transactions per day on the platform and added that, as long as no payments are missed on their longer-term financing product, using the service does not adversely impact the user’s credit rating. They say that this is clearly explained on their website.
However, in spite of never having missed a payment, Nicki’s mortgage was declined based on her Klarna use.
"When I applied for the mortgage the advisor told me that I was essentially 'blacklisted' because I had Klarna on my record," Nicki says. "I did some digging to see if what the advisor said was legitimate by applying for loans and overdrafts. I’ve never missed a repayment on anything and have been building my credit rating for years but everything was turned down. I think it was because of my use of Klarna and because I had a rejected mortgage on my record too."
Nicki is emotional when she recounts this. "I can’t get anything now," she adds. "It’s not like Klarna is marketed at buying essentials, I wish I had known it could impact me like this. I am furious. My blood is boiling."
Similarly, 26-year-old HR project coordinator Lauren Gibbins from Manchester was recently warned about her Klarna use by a mortgage advisor. "I’m in the process of looking to buy somewhere and my advisor told me that some banks consider using BNPL negatively," she explains. "They told me to stop using it and that they would advise me to use a credit card and pay it off instead."
Like Nicki, Lauren doesn’t need to use Klarna but has found it convenient. "I usually use it when I’m buying clothing in more than one size to try on at home and planning to send the sizes that don’t fit back," she says.
Sabrina Hall runs her own company, Kind Financial Services, and has been a mortgage advisor for 20 years. She is concerned that young women are using BNPL services and not realising that it could cause mortgage lenders to look on them unfavourably.
"I recently had a client whose mortgage application with Chorley Building Society was declined because they had used Klarna," Sabrina says. "We managed to get them a mortgage with a different lender because banks are treating these cases differently."
Sabrina says the last time she experienced something like this was when payday loans became popular. She understands why mortgage lenders are being cautious. "In fairness to the mortgage lender, seeing Klarna payments on someone’s bank statement implies that they are living beyond their means."
"We did appeal the rejection based on the client saying that they tend to use Klarna for ordering clothes in multiple sizes online so they can send back the ones they don’t like without having to pay," Sabrina adds. As she sees it, the key problem is that some lenders don’t understand how people are using BNPL because it’s a relatively new phenomenon.
"I think the biggest problem is that BNPL is unregulated," Sabrina concludes. "It could potentially lead to someone having an over-reliance on debt which, if it gets out of hand, can cause much bigger problems for a mortgage which might not be as easy to resolve."
A Klarna spokesperson told Refinery29: "We think this is a mistake by mortgage providers who haven’t understood the fundamental changes in the way consumers pay online today. Simply having Klarna appear on a bank statement is no indication of a credit history as our BNPL products do not affect your credit score. The vast majority of our 15 million UK customers pay us back on time because we provide a more healthy and sustainable form of credit. Regular, on time, or early repayments to BNPL providers like Klarna shows that consumers are managing their finances and offers an alternative to credit cards which can trap people into a revolving cycle of debt."
Refinery29 has contacted Chorley Building Society for comment.
This article was updated on Tuesday 20th of July to reflect that a missed repayment on Klarna's longer-term financing product will impact a user's credit score while one on the shorter-term BNPL schemes would not.