Millions of shoppers in the United Kingdom are set to experience significant changes next month as buy now, pay later (BNPL) services undergo a major regulatory overhaul. Starting July 15, companies offering BNPL products, including PayPal, Klarna, and Clearpay, will come under the supervision of the Financial Conduct Authority (FCA). This means lenders must now conduct affordability checks and provide clearer information about the risks of borrowing. The reforms aim to address growing concerns that consumers are accumulating debt without fully comprehending the consequences, while industry experts warn that these changes could also affect borrowers seeking mortgages.
New Requirements for BNPL Providers
Under the updated rules, BNPL providers will be required to inform customers about the total amount borrowed, repayment due dates, any late-payment penalties, and the rights and protections available to them. Lenders must also perform affordability assessments before extending credit and offer support to customers who miss payments. These measures are designed to increase transparency and protect consumers from falling into debt traps.
Impact on Mortgage Applications
Mortgage brokers have welcomed the long-awaited reforms, noting that many consumers do not view BNPL as a form of borrowing, despite its potential impact on their finances. Darani Ganesharajah, a mortgage broker at Springtide Capital, stated: "People using BNPL often overlook the fact that they are borrowing money, which can be a blow to their buying ambitions when it comes to applying for a mortgage. Hopefully, the sector being regulated will make people think more about what they are entering into and the risks involved."
She cautioned that some borrowers neglect to mention BNPL commitments during mortgage applications because they do not consider them debts. Ganesharajah added: "Borrowers will sometimes forget to disclose them or simply not consider them relevant when discussing their finances. This can create issues later in the mortgage process when lenders identify the commitments through bank statements or credit checks. In some cases, it can lead to reduced borrowing capacity, declined Decisions in Principle, additional credit searches, requests for further documentation, and delays to applications."
Improved transparency could ultimately prove beneficial for both consumers and lenders. Thomas Boughton, founder of Artillium Real Estate Finance, told Newspage that the changes were "long overdue." He said: "Consumers have increasingly been entering into largely unregulated, instant credit agreements without fully understanding the risks or long-term financial impact." Boughton noted that mortgage lenders frequently adopt a wary stance towards BNPL borrowing, even when repayments are kept up to date. "From an advisory standpoint, we advise against any BNPL usage," he added.
Lender Perspectives on BNPL Usage
Nouran Moustafa, practice principal and IFA at Roxton Wealth, explained that the key issue for lenders is how often customers use BNPL products. She said: "It is often used for discretionary purchases such as clothing or footwear, and frequent use can be a red flag in mortgage assessments. From a lender's point of view, if you have to finance a pair of shoes, it probably isn't the right time to look at mortgage options, and that is the reality." She further noted that mortgage lenders do not automatically treat BNPL as bad but examine usage patterns. Occasional BNPL use that is repaid on time is very different from someone constantly splitting small everyday purchases because cash flow is tight.
Moustafa added that while regulation should make BNPL products more transparent, excessive use could still be held against borrowers. "My view is simple: regulation is good for consumers, but borrowers should not confuse regulated with harmless," she said.
Harry Goodliffe, director at HTG Mortgages, agreed that borrowing behaviour remains critical. "The issue has never really been Buy Now Pay Later itself, but how it's used," he stated.
Consumer Awareness and Credit Scores
Samuel Mather-Holgate, managing director at Mather and Murray Financial, suggested the new framework would prompt consumers to think more carefully about the consequences of using such products. He added: "Without doubt, the new regime will make consumers more aware of what they are doing and the potential implications of it on their credit score."
The reforms represent the most significant shake-up of the BNPL market since the payment option surged in popularity. Millions of Britons currently use services from Klarna, Clearpay, and PayPal to spread the cost of purchases, and these changes are expected to bring greater accountability and protection to the sector.
