Wagestream is a new service that partners with employers in order to give staff the option of tapping into some of their monthly wage early.
Employers pay around £1 a month per employee for the service, and can limit how much their staff can withdraw ahead of their actual payday. Employees are then charged £1.75 each time they make a withdrawal.
The firm 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 payday loan.
However, there is concern among brokers that lenders will take a dim view of borrowers who make use of such facilities.
Can they really budget?
David Sheppard, managing director of Perception Finance, said that it would “rightly cause a mortgage lender some degree of concern” if they found that a prospective borrower had used a service like this, as “they are almost the same” as payday loans.
He suggested that the need to get money outside of the normal pay schedule would prompt lenders to question whether the borrower is sufficiently able to budget.
“This type of function may be okay for a one off but I think if a lender saw it being used two or three times every month they would be concerned that mortgage payments may get missed if there are insufficient funds to do so,” he added.
Taking responsibility
Paul Flavin, managing director of Zing Mortgages, said that products like this are just a way of “kicking the problem down the road”, noting that if it is used repeatedly then it’s down to “a lack of budgeting rather than needing access to emergency funds”.
He added: “I do feel strongly that financial prudence is something that becomes ever more scarce in a ‘need it now’ society and although I appreciate that many people have a shortfall in pay to expenditure, we do see a great deal of applications from people who earn well but still utilise payday loans rather than taking the responsibility to budget.”
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 salaries, and noted that if an employee withdraws money during a pay cycle, it enters their account under the employer name as normal, with any withdrawal matching exactly the net pay amount on their pay slip.
He continued: “As a result it has no negative impact on affordability calculations. There is no borrowing, no interest and no deductions are shown against an employee’s income on their payslip.
“Mortgages for people who use Wagestream actually become more, not less, affordable because they are less likely to have to resort to high cost forms of borrowing, such as payday loans, credit cards and overdrafts. Therefore they have better credit scores.
“This means they avoid having to pay hefty interest rates and also, in the case of payday loans, do not see their credit scores adversely 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 scheme as a sign of “stressed affordability”.
He added: “At the very least we would require an explanation as to why the applicant needed to access their salary ahead of pay day. Secondly, we would look for the frequency of use.”
The lender does not accept applications from prospective borrowers who have taken out a payday loan within 24 months of application.
A spokesperson for Yorkshire Building Society said that when it reviewed a mortgage application, it was in the interest of both the borrower and mutual that it checks that their income is “regular and steady”.
They added: “Our underwriters will always review payslips to look at income and often review bank statements as well to get a view of their overall financial well being. We do assess applications on a case by case basis so our underwriters can be confident that the borrower is able to manage the commitment they are taking on.”
